Accounting Chapter 8

Front 1

Contingent Liability

Back 1

When a liability depends on a future event.

Recognized when the event is probable and a reasonable estimate of the loss can be made

Front 2

Current Liabilities

Back 2

Obligations that require the firm to pay cash or another current asset, create a new liability, or provide goods or services within the longer of one year or one operating cycle. `

Front 3

Account Payable

Back 3

Arises when a business purchases goods or services on credit.

Does not require a formal agreement or contract.

Front 4

Accrued Liabilities

Back 4

Recognized by adjusting entries, they usually represent the completed portion of activities that are in process at the end of the period.

Front 5

Note Payable

Back 5

Arises when a business borrows money or purchases gods or services from a company that require a formal agreement or contract.

Front 6

Interest on Notes Payable

Back 6

The maturity amount of an interest - bearing note is not stated explicitly but is determined from the interest rate, the principle amount, and the maturity date.

Front 7

Payment extensions

Back 7

Notes payable are often created when a borrower is unable to pay an account payable in a timely manner

A current liability can be retired through the creation of a new current liability

Front 8

Sales Tax

Back 8

At the time of a sale, most retail businesses collect sales taxes, usage taxes, or excise taxes for various state, local, and federal taxing authorities

Sales Taxes are not additions to revenue

Front 9

Unearned Revenues

Back 9

The liability created when customers pay for goods or services in advance.

Front 10

Warranties

Back 10

Usually guarantees the repair or replacement of defective goods during a period.

Since warranty costs are sales related, they must be recorded in the sales period.