Accounting ch11

short term note payable

A written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

what are some known liabilities?

A/P, N/P, Payroll obligations, sales taxes, unearned revenues, and leases

Transaction to extend credit period

A/p---McGraw Cash N/P-McGraw send 100$ cash and a 60 day, 12% note for payment

known liabilities

Arise from agreements, contracts, or laws and they are measurable

Example of Note given to borrow from bank

Assume a company borrows 2k from a bank at 12% annual interest. Loan is made on sept 30, 2017 and is due in 60 days. Note states "I promise to pay 2k plus interest at 12% within 60 days after sept 30. The borrower records its receipt of cash and new liability like this. Cash Notes Payable Borrowed 2k with a 60 day 2,000 12%

Transaction to borrow from bank

Cash Notes payable Borrowed 2k with a 60 day 12%, 2000

Rihanna sells 5m million in tickets for 8 concerts.

Cash 5m Unearned Ticket Revenue 5m

if Home Depot sells material on aug 31 for 6k that are subject to a 5% sales tax, revenue portion of this transaction is recorded as follows

Cash 6300 Sales. 6000 Sales Tax Payable 300 Record cash sales and 5% sales tax

Example of companies replacing payables?

Creditor requires the substitution of an interest bearing note for an overdue a/p. For example, on aug 23, Brady company asks to extend its past due 600$ account payable to McGraw. After negotiations, McGraw-Hill agrees to accept 100$ cash and a 60 days 12% 500% note payable to replace the a/p. Brady records it like this. A/p McGraw Cash N/p- McGraw

accounting for liabilities requires three important questions, whom the pay? when to pay? how much to pay?

Okay

How about when it sends these collections to the government?

Sales Tax Payable (not an expense) Cash

Deferring revenues

Unearned Ticket Revenue. 5m Ticket Revenue 5m to record concert ticket revenues earned

Companies can replace a/p's with n'ps.

Yes!

example of uncertainty in how much to pay

a company can be aware of an obligation, but not how much is required. A company using electrical power is billed only after the meter has been read. Cost Is incurred and the liability created before a bill is received. A liability to the power company is reported as an estimated amount if the balance sheet is prepared before a bill arrives

example of uncertainty in whom to pay

a company can create a liability with a known amount when issuing a note that is payable to its holder. A specific amount is payable to the note's holder at a specified date, but the company doesn't know who that holder is until that date. Despite this uncertainty, company reports this liability on their balance sheet

example of uncertainty in when to pay

a company can have an obligation of a known amount to a known creditor but not know when it must be paid. A legal services firm can accept fees in advance from clients who plans to use their services in the future. This means the firm has a liability that it settles by providing services at an unknown future date

what is a liability?

a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

examples of current liabilities

a/p, short term n/p, wages payable, warranty liabilities, lease liabilities, taxes payable, unearned revenues

Bankers rule

compute interest always using.a 360 day year

Sales tax is a

current liability

Examples of unearned revenues

hotel reservations, construction projects gift card sales, custom orders, mag subs, ticket sales in airline

Interest Expense is computed by

multiply principle of the note (500$) by the annual interest rate, (12%) for the fraction of the year, the note is outstanding, 60 days/360 days)

Why would McGraw accept a N/p over an A/P?

n/p's receives interest and is written doc of the debts existence, term, and amount.

Definition of a liability includes a past transaction or event, a present obligation, and a future payment of assets or services. If one or more of these are absent, what happens?

no liabilities is reported, for example, if a companies are expected to pay wages in future years, but these aren't liabilities because no past event such as employee work resulted in a present obligation. Liabilities are recorded when employees perform work and earn wages

Two types of transactions that create n/p

note given to extend credit period, and given to borrow from bank

long term liabilities

obligations due after one year or the company's operating cycle, whichever is longer

Bank requires borrowers to sign a promissory note when making a loan, when the note comes due, the borrow then repays the note with an amount larger than the amount owed. The Difference between these two is interest. For example, lets say we have a note the signer promises to pay principal, or the amount borrowed, plus interest. Here, the face value of the note equals the principle, that which is the value shown on the front of the note.

okay!

What does it mean to defer a revenue?

postpone recognition of one that is collected in advance until it is earned

current liabilities

short term liabilities, are obligations due within one year or the company's operating cycle, whichever is longer, paid using current assets optimally or creating other current liabilities.

a single liability can be split between the current and concurrent sections if a company expects to make payments toward it in both the short and long term

true

Unearned Ticket Revenue is a current liability

yes!

note payables are helpful in resolving things like legal disputes

yes!