Chapter 13 Current Liabilities
Terms in this set (23)
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
What are a liabilities three essential characteristics?
1. It is a present obligation that entails settlement by probable future transfer or use of cash, goods, and services.
2. It is an avoidable obligation
3. The transaction or other event creating the obligation has already occurred.
Current Liability (Definition)
Obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities.
Accounts Payable/ Trades Accounts Payable (Definition)
Balances owed to others for goods, supplies, or services purchased on an open account.
Notes Payable (Definition)
Written promises to pay a certain sum of money on a specified future date. May arise from purchases, financing, or other transactions.
Trade Notes Payable (Definition)
Some industries require notes as part of the sales/purchases transaction in lieu of the normal extension of the open account credit. Can be interest bearing or zero interest bearing.
Discount on Notes Payable (Definition)
Contra account to notes payable. It is subtracted form notes payable on the balance sheet. It represents interest expense chargeable to future periods
Cash Dividends Payable (Definition)
An amount owed by a corporation to its stockholders as a result of its board of directors authorization. Are paid within one year of declaration (generally within three months)
Preferred Dividends in Arrears (Definition)
Dividend payment associated with cumulative preferred stock that has not been paid by the expected date. Once authorization has been made, these dividends appear in the balance sheet of the issuing identity as a short-term liability.
Returnable Cash Deposits (Definition)
Received from customers and employees. Companies may receive deposits from customers to guarantee performance of a contract or service or as guarantees to cover payment of expected future obligations.
How to determine Unearned Revenue
1. When a company receives an advanced payment, it debits cash, and credits a current liability account identifying the source of unearned revenue.
2. When a company recognizes revenue, it debits the unearned revenue account, and credits a revenue account.
Name three Employee related liabilities
1. Payroll deductions
2. Compensated absences
Payroll Deductions (Definition)
Amounts withheld from an employee's payroll check, and these amounts are withheld by their employer. Among these deductions are insurance pension contributions, wage assignments, child support payments, taxes, and union and uniform dues.
Compensated Absences (Definition)
Are paid absences from employment- such as vacation, illness, and holidays. Companies should accrue a liability for the cost of compensation for future absences.
An existing condition, situation, or set of circumstances involving uncertainty as to a possible gain or loss to an enterprise that will ultimately be resolved when on for more future events occur or fail to occur.
Gain Contingencies (Definition)
Are claims or rights to receive assets ( or have a liability reduced) whose existence is uncertain but which may become valid eventually.
Typical gain contingencies are:
1. Possible receipts of monies from gifts, donations, asset sales, and so on.
2. Possible refunds from the government in tax disputes.
3. Pending court cases with a probable favorable outcome.
4. Tax loss carry forwards
Contingent Liabilities (Definition)
A liability incurred as a result of loss contingency. Depend on the occurrence of one or more future events to confirm either the amount payable, the payee, the date payable, or its existence.
Likelihood of Loss: Probable (define)
The future event or events are likely to occur
Likelihood of Loss: Reasonably Possible (define)
The chance of the future event or events occurring is more remote, but less likely.
Likelihood of Loss: Remote (Define)
The chance of the future event or events occurring is slight
Common Loss Contingencies
1. Litigation, claims, and assessments
2. Guarantee and warranty costs
3. Premiums and coupons
4. Environmental liabilities
a promise made by a business that they will correct any defects in the goods that they produce or in the services that they deliver