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