Chapter 8: Current and Contingent Liabilities

*Contingent Liabilities* Accrue an estimated loss for a contingent liability if two conditions are met :

1) Info available prior to the issuance of the financial statement indicates that it is probable that a liability has been incurred at the date of financial statements *and* 2)Amount of the loss can be reasonably estimated

Warranty

A guarantee to repair or replace defective goods during a period(ranging from a few days to several years) following the sale.

Unearned Revenue

A liability that occurs when a company receives payment for goods that will be delivered or services that will be performed in the future.

Note Payable

A payable that arises when a business borrows money or purchases goods or services from a company that requires a formal agreement or contract.

Interest Rate

A percentage of the principal that must be paid in order to have use of the principal. It must be multiplied by the beginning-of-period balance to yield the amount of interest for the period.

Gain Contingency

An existing condition, situation, or a set of circumstances involving uncertainty as a possible gain to an entity that will ultimately be resolved when one or more future evens occur or fail to occur.

Loss Contingency

An existing condition, situation, or a set of circumstances involving uncertainty as a possible loss to an entity that will ultimately be resolved when one or more future evens occur or fail to occur. The term loss is used for convince to include many charges against income that are commonly referred to as expenses and others that are commonly referred to as losses.

Contingency

An existing condition, situation, or set of circumstances involving uncertainty as to possible gain (gain contingency) or loss (loss contingency) to an entity that will ultimately be resolved when one or more future events occur or fail to occur.

Account Payable

An obligation that arises when a business purchases goods or services on CREDIT.

Contingent Liabilities

An obligation whose amount or timing is uncertain and depends on future events.

Withholding Taxes

Business are required to withhold taxes from employees' earnings; standard withholdings include federal, state, and possibly city or country income taxes, as well as Social Security and Medicare. Employees may also have amounts withheld for such things as retirement accounts and health insurance.

Payroll Taxes

Taxes that a business must pay based n employee payrolls; these amounts are not withheld from employee pay, rather they are additional amounts that must be paid over and above gross pay.

Accrued Liabilities

Liabilities that usually represent the completed portion of activities that are in process at the end of the period.

Sales Taxes

Money collected from the customer for the governmental unit levying the tax.

Current Liabilities

Obligations that require a firm to pay cash or another current asset, create a new current liability, or provide goods or services within one year or one operating cycle, which is even longer.

accrued expenses

Previously unrecorded expenses that have been incurred but not et paid in cash.

Liabilities

Probable future sacrifices of economic benefits; liabilities usually require the payment of cash, the transfer of assets other than cash or the performance of services.