Topic 12: Liabilities: Notes payable and other Current Liabilities

Banker's Year

A 360 day period used to calculate interest on a note

Trade Acceptance

A draft used in recording transactions involving the sale of goods

Interest

A fee charged for the use of money Interest = principal X Rate X Time

Negotiable Instrument

A financial document contains a promise or order to pay that meets all the UCC requirements to be transferable to another party.

Deferred Taxes

A liability that results from the temporary difference in taxes due based on the accounting records and tax return information

Draft

A written order that requires one party to pay a stated sum of money to another party

Notes Receivable

An asset representing a promissory note for a debtor to pay the creditor

Liabilities

Debts or obligations a business owes to its creditors.

Discounting

Deducting the interest from the principal of a note in advance.

Discounted Notes Payable

Face Amount - Discount = Proceeds

Debtor

Person or business borrowing money from another person or business.

Creditor

Person or business granting credit to another person or business.

Discounting A Note Receivable

Principal + Interest - Discount = Proceeds

Notes Payable

Promissory note

Unearned Revenue

Revenue a company has been paid but the product or service has yet to be delivered

Taxes Payable

Taxes that are due but not yet paid

Discount Period

The period from the date the note is take to the bank to be discounted to the maturity date.

Maturity Value

The total amount that must be paid when a note becomes due Principal + Interest = Maturity Value

UCC

Uniform Commercial Code

Wages Payable

Wages that have been earned by employees but not yet paid to them

Calculating the Maturity Date of a Note

- Determine the number of days remaining in the  month of issue. - Determine the number of days in each full month of  the note. - Determine the number of days in the last month of  the note. - Add the days together to confirm that they equal the  period of the note.

UCC Requirements for Negotiability

-Must be in writing and signed by the maker -Must contain an unconditional promise to pay a  definite amount of money - Must be payable either on demand or at a future  time that is fixed or that can be determined - Must be payable to the order of a specific  person or to the bearer - Must clearly name or identify the drawee if  addressed to a drawee.

Contingent Liability

An item that can become a liability if certain things happen

Long-Term Liabilities

Liabilities due outside of the current fiscal year. Example: Long-term Notes Payable, Bonds Payable, Loans Payable, etc.

Current Liabilities

Liabilities due within the current year (fiscal year). Examples: AP, Short-term Notes Payable, Wages Payable, Taxes Payable, Unearned Revenue, Sales Tax Payable, Interest Payable, etc.

Bonds Payable

Money that is due to a bond holder but has yet to be paid