Chapter 8 - Current Liabilities

__________________________ , sometimes called trade accounts payable, are amounts the company owes to suppliers of merchandise or services that it has bought on credit.

Accounts payable

Contingent Gain definition

An existing uncertain situation that might result in a gain. (often is the flip side of contingent liabilities.)

Contingent Liability definition

An existing uncertain situation that might result in a loss depending on the outcome of a future event. (Examples include lawsuits, product warranties, environmental problems, and premium offers. )

Line of Credit definition

An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.

Commercial Paper Definition

Borrowing from another company rather than a bank.

True or False About two-thirds of bank loans are short-term.

True (Companies often use short-term debt because it usually offers lower interest rates than long-term debt.)

LO5: Contingencies definition

Uncertain situations that can result in a gain or a loss (depending on the outcome) for a company

_____________ are perhaps the most common example of contingent liabilities.

Warranties (done because this increases sales.)

Notes Payable definition

Written promises to repay amounts borrowed plus interest.

We do not record contingent gains until the gain is __________.

certain

If the likelihood of payment is only reasonably possible, we record no entry but make ___________________________ in a note to the financial statements to describe the contingency.

full disclosure

When a company borrows money, it pays the lender ____________ in return for using the lender's money during the term of the loan.

interest

Deferred Revenue is a _____________ account, not a revenue account.

liability

LO2: Recall that notes receivable is an asset that creates interest revenue. In contrast, notes payable is a __________ that creates interest _____________.

liability / expense

When no amount within the range appears more likely than others, we record the _______________ amount and disclose the range of potential loss.

minimum

If the likelihood of payment is remote, disclosure usually is ________________.

not required

Most accounts are payable within _________________ and are therefore classified as current liabilities.

one year

"Payable" is a liability that will be _________ off. "______________" is a liability that will be worked off.

paid / Deferred

A contingent liability is recorded only if a loss is ____________ and the amount is _______________________________.

probable / reasonably estimable

If the likelihood of payment is probable and if one amount within a range appears more likely, we record _________________.

that amount