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19 Cards in this Set
- Front
- Back
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What are current liabilities ?
What are some examples of KNOWN current liabilities ? |
Current liabilities are obligations that are due within one year.
Some examples include: accounts payable, short-term notes payable, sales tax payable, current portion of long term debt, accrued liabilities (interest payable), unearned revenue. |
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When a sale is made, the company is responsible to collect sales tax (VAT) to pay to the government.
Show how a company journalizes sales tax payable |
Cash-----------------------200 ----Sales--------------------------180 ----Sales Tax Payable---------20 (Collecting payment and sales tax payable at same time)
Sales Tax Payable-----6,800 ----Cash----------------------------6,800 (Pay ALL sales tax collected during the previous quarter) |
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Show how a company journalizes Unearned Revenue |
Cash-----------------------------400 ---Unearned Revenue-----------400 (Recording advance payment for services to be rendered)
Unearned Revenue---------400 ---Revenue---------------------------400 (Record revenue once service is performed) |
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What is an ESTIMATED current liability ?
What are some examples of an ECL ? |
A liability whose value must be estimated because it is not known in the period when the liability arises.
Some examples include: Warranty costs, promotional costs (FF miles), Vacation pay liability, Income Tax payable, property tax payable |
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Warranty expense must be journalized in the same period as when the product is sold - in order to meet the matching principle.
Show how a company journalizes warranty expense: |
Warranty Expense----------------------5000 ---Provision for Warranty Repairs--------5000 (Accrue estimated warranty expense in period of sales)
Provision for Warranty Repairs----4300 ---Inventory---------------------------------------4300 (Record replacement of defective products) |
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Business growth generally requires investment in long-term assets. Most businesses don't generate sufficient cash from operations in order to finance long-term assets.
Thus, long term assets are generally financed through...? |
Long-term debt or Issuance of new shares |
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What are some common types of long-term debt? |
Note payable - (debt to one creditor, repaid on a given date)
Mortgage payable - (secured by real property, equal monthly payments)
Bonds payable - (debt to many creditors, repaid on given date) |
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What is the debt ratio ? |
A general measure of a company's indebtedness, that is, the percentage of a company's assets that are financed by debt.
Total Liabilities / Total Assets |
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What is Times Interest Earned ? (aka Interest Coverage Ratio) |
Ratio which measures the number of times that the operating income can cover interest expense.
The LARGER the BETTER
OPERATING INCOME / INTEREST EXPENSE |
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What is the bond certificate ? |
given to creditors; states all terms of bond |
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Term Bond vs. Serial Bond |
TERM - Paid back all at once
SERIAL - Paid back on different dates |
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Secured Bond vs. Non-Secured Bond (Debenture) |
Secured - backed by an asset
Non-secured - not backed by an asset |
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Bonds are sold at market price. What is the market price? |
The amount investors are willing to pay for the bond |
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Bonds can be considered as loans from the general public whereas as notes are....? |
loans from one entity |
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If the Face Value interest rate = the Market interest rate, then...? |
Bonds are sold at their stated value |
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When the face value interest rate is higher than the market interest rate........? |
Bonds are sold at a premium |
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When the face value interest rate is lower that the market interest rate.......? |
Bonds are sold at a discount |
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What are three methods of financing assets and list them in order of riskiness (least to most) ? |
1. Paying cash - least risky
2. Issuing stock - little risk, but dilutes ownership percentage of stockholders
3. Long-term debt - most risky, creates more debt |
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Show how a company journalizes Notes Payable |
Inventory--------------------------12,000 ---Note Payable----------------------------12,000 (Purchase inventory paid for by issuing a note payable due in 3 months carrying 5% interest)
Interest Expense--(12000*.05 / 12)------50 ---Interest Payable---------------------------------50 (Record interest on a note payable at year end)
Note Payable-------------------------------------------------12,000 Interest Payable----------------------50 Interest Expense (12000 * .05 / 12 * 2)-100 ---Cash------------------------------------------------12,150 (record payment of note payable)
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