Ch13 Acct

Chapter 13

Characteristics of Liabilities- entered into transaction with future benefit

Current Liabilities are payables

Accounts Payable- open account (business agreement)

Notes Payable- Written note and interest timed

Credit Line- s/t financing that is only on balance sheet if used, otherwise the agreement is a note for shareholders

Interest- only account for after you’ve accrued it. If you purchase merchandise with a note

Merchandise Inventory $10,000

NP $10,000

Noninterest-bearing Notes- interest is imbedded in the price (implicit rate)

Commercial paper- unsecured notes issued in min denominations of $25,000. This is a liability agreement between a large company to loan money to another large company with low interest- Keeps banks out of the picture

Compensation expense and liability-( sick days, future absences etc.) Book liab. If meets ALL 4 rules

1. Services already performed 2. Benefit can be accrued over time 3. Payment is probable 4. Amount reasonably estimated

Gift Cards- after a reasonable amount of time, the Company can book the revenue (ab 90 days). Concept of breakage.. Inventory and COGS accounts hit after person comes in and uses card after company recognized revenue

Inception: Debit Cash, Credit Unearned Revenue

Used- Debit Unearned Revenue, Credit Sales Revenue

Debt covenance – LT debt payoff within a year has to be classified as current liability. If Debt/Asset ration exceeds 70%, the bank will say pay debt within 1 year or UP interest. Under GAAP if you guarantee auditor within 60 days of the end of the year you can get it down, then you don’t have to classify it as CL. IFRS says 12/31 or else!

Loss contingency- existing uncertain situation involving potential loss depending on whether a future even occurs

Product Warranties and Guarantees- inevitably entail costs, but reasonable estimated using estimation techniques.

Warranty Expense $10,000

Estimated Warranty Liability $10,000

Voluntary...