Kế toán, kiểm toán - Chapter 11: Current liabilities

Chapter 11Current LiabilitiesDefining LiabilitiesC 1Classifying LiabilitiesExpected to be paid within one year or the company’s operating cycle, whichever is longer.Current LiabilitiesNot expected to be paid within one year or the company’s operating cycle, whichever is longer.Long-Term LiabilitiesC 1Current LiabilitiesCurrent Liabilities as a Percent of Total LiabilitiesC 1Uncertainty in LiabilitiesUncertainty in When to PayC 1Uncertainty in Whom to PayUncertainty in How Much to PayAccounts PayableSales Taxes PayableUnearned RevenuesShort-Term Notes PayableKnown LiabilitiesPayroll LiabilitiesMulti-Period Known LiabilitiesC 2Sales taxes are called goods and services taxes in come countries. On August 31, Harvey Norman sold materials for $6,000 that are subject to a 10% goods and services tax (GST).Sales Taxes PayableC 2$6,000 × 10% = $600On June 30, Beyonce sells $5,000,000 in tickets for eight concerts.Unearned RevenuesC 2On Oct. 31, Beyonce performs a concert.$5,000,000 / 8 = $625,000A written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer.Short-Term Notes PayableP 1On August 23, Brady Company asks McGraw to accept $100 cash and a 60-day, 12% $500 note to replace its existing $600 Account Payable. Note Given to ExtendCredit PeriodP 1On October 22, Brady pays the note plus interest to McGraw. Note Given to ExtendCredit PeriodP 1Interest expense = $500 × 12% × (60 ÷ 360) = $10NOTE GIVEN TO BORROW FROM BANKP 1Note Given to Borrow from BankOn Sept. 30, a company borrows $2,000 from a bank at 12% interest for 60 days. P 1On Nov. 29, the company repays the principal of the note plus interest. Interest expense = $2,000 × 12% × (60 ÷ 360) = $40Note DateEnd of PeriodMaturity DateAn adjusting entry is required to record Interest Expense incurred to date.End-of-Period Adjustmentto NotesP 1End-of-Period Adjustmentto NotesP 1On Dec. 16, 2011, a company borrows $2,000 from a bank at 12% interest for 60 days. An adjusting entry is needed on December 31. On Feb. 14, 2012, the company repays this principal and interest on the note. Payroll Liabilities Employers incur expenses andliabilities fromhaving employees.P 2An entry to record payroll expenses and deductions for an employee in Singapore might look like this.Recording Employee Payroll DeductionsP 2Multi-Period Known LiabilitiesIncludes Unearned Revenues and Notes PayableUnearned Revenues from magazine subscriptions often cover more than one accounting period. A portion of the earned revenue is recognized each period and the Unearned Revenue account is reduced.Notes Payable often extend over more than one accounting period. A three-year note would be classified as a current liability for one year and a long-term liability for two years.C 2Estimated Liabilities An estimated liability is a known obligation of an uncertain amount, but one that can be reliably estimated.P 4Warranty LiabilitiesSeller’s obligation to replace or correct a product (or service) that fails to perform as expected within a specified period. To comply with the full disclosure and matching principles, the seller reports expected warranty expense in the period when revenue from the sale is reported.P 4Warranty LiabilitiesP 4On Dec. 1, 2011, a dealer sells a car for $16,000 with a maximum one-year or 12,000 mile warranty covering parts. Past experience indicates warranty expenses average 4% of a car’s selling price. On Jan. 9, 2012, the customer returns the car for repairs. The dealer replaces parts costing $200. Accounting forContingent LiabilitiesC 3PossibleContingent LiabilitiesPotential Legal Claims – A potential claim is recorded if the amount can be reliably estimated and payment for damages is probable.Debt Guarantees – The guarantor usually discloses the guarantee in its financial statement notes. If it is probable that the debtor will default, the guarantor should record and report the guarantee as a liability.C 3If profit before interest and taxes varies greatly from year to year, fixed interest charges can increase the risk that an owner will not earn a positive return and be unable to pay interest charges.Times Interest EarnedTimes interestearnedProfit before interest expenseand income taxesInterest expense=A 1End of Chapter 11