BUS 201 Exam 3 CH 9

What is a classified balance sheet?

A classified balance sheet is one that separates assets and liabilities into current and noncurrent items.

What is a contingent liability?

A contingent liability is a potential liability arising from a past event.

Are contingent liabilities recorded on a company's books? Explain.

Only contingent liabilities that are probable and reasonably estimated are recorded on the books.

What is the difference between wages and salaries?

Wages generally refers to compensation earned based on the number of hours worked.

What does the term warranty mean?

A warranty is a guarantee of a product or service.

When a business collects sales tax from customers, is it revenue? Why or why not?

Collection of sales tax is not revenue. The retailer is merely acting as a collection agency for the state. The retailer collects the sales tax and periodically remits it to the state.

What is a current liability? Distinguish between a current liability and a long-term debt.

Current liabilities are liabilities that are payable within one operating cycle. A long-term debt is due in more than one year from the date of the balance sheet. However, any amount that is due in the next 12 months is classified as the current portion of long-term debt in the current liabilities section of the balance sheet.

What is the difference between gross pay and net pay for an employee?

Gross pay is the total amount of salaries or wages earned before any deductions. Net pay is the employee's gross earnings less all deductions (withholdings for taxes and other items such as retirement plans, health insurance, and union dues).

What is the difference between the liquidity and the solvency of a business?

Liquidity refers to a business's ability to generate short-term cash flows. Solvency is the ability to repay liabilities in the long run.