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CH 8 (1)
Terms in this set (21)
What are the five most frequently used current liabilities?
Notes payable (short-term)
Current portion of long-term borrowings
Unearned (deferred) revenue
Current liabilities are usually incurred mostly for financing activities. True or false?
What does the accounts payable turnover ratio measure?
The number of times a year the company pays its accounts payable.
What is the equation used to express accounts payable turnover (T/O) in days?
Turnover expressed in days = 365 ÷ T/O
What is difficulty in calculating the accounts payable turnover ratio?
Is that "Purchases from suppliers" is not normally reflected by any number on a company's financial statements. Therefore, the purchases must be calculated.
Expressing the turnover ratio in terms of the average number of days it took the business to pay its suppliers' invoices is called
Days' payable outstanding (DPO)
Companies with shorter DPOs are generally better credit risks than those with longer payment periods. True or false?
Why would suppliers continue to work with companies that strategically stretch out their DPOs?
Huge companies like Amazon.com, Walmart, and Target that stretch out their DPOs to maximize the returns on their excess cash make it tough for suppliers. However, because of their size, market share, and buying power, few suppliers can afford not to do business with them.
___________ are notes payable due within one year (or operating cycle if longer).
Short-term notes payable
What is the current portion of long-term debt?
The amount of the principal of a long-term note that is payable within one year (or operating cycle if longer).
At the end of each year, a company reclassifies the portion of its long-term debt principal payments that must be paid in the next year from _________ to a current __________.
The accrual method of accounting requires that expenses be recognized as they are incurred and matched against revenues earned in the same period. What are the liabilities associated with these expenses called?
Suppose a retail store's Saturday sales were $100,000 and the store collected an additional 5% of sales tax. Show how the store would record that day's sales.
Sales Revenue ------100,000
Sales Tax Payable -----5,000
The major operating expense for a merchandising company is payroll. True or false?
Define the following employee compensation forms:
Salary -employee pay stated at a monthly or yearly rate
Wage - employee pay stated at an hourly rate
Commission - a percentage of the sales that a sales employee has made
Bonus - an amount over and above regular compensation
What payroll liabilities does salary expense create?
Employee Income Tax Payable, FICA Tax Payable, Salary Payable
Every expense accrual, including payroll, has the same effect: ______ and ________ because of the expense.
When is a company required to record warranty expense?
The expense recognition principle requires a company to record the warranty expense for a product in the same period that the business records the product's sales revenue.
The journal entry is: Debit Warranty Expense, Credit Warranty Payable
As claims are paid, the Warranty Payable that was recorded in the past is used.
Debit Warranty Payable, Credit Cash
What are unearned revenues?
Cash amounts a business has received from customers before earning the revenue.
A contingent liability is a potential liability that depends on the ______ outcome of _________ events.
Match the following terms to describe FASB's guidelines on how to account for contingent liabilities
c. No need to report
___ Reasonably possible
___ Unlikely to occur
___ Probable and reasonably estimable
_b__ Reasonably possible
_c__ Unlikely to occur
__a_ Probable and reasonably estimable
THIS SET IS OFTEN IN FOLDERS WITH...
CH 9 (1)
Ch 9 (2)
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