topic 8 - reporting and analyzing current liabilities

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5 Terms

1
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what’s the journal entry for sales tax?

debit: cash

  • credit: sales revenue

  • credit: taxes payable

2
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what is a contingent liability?

an uncertain future event that has been caused by previous actions. they will not always be recorded

3
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when are contingent liabilities recorded?

  • if it will cause probable damage that can be estimated, there will be a journal entry

  • if it is reasonably possible that it will cause damage that can be estimate, there will be a footnote

  • if it’s probable/reasonably possible but the damage cannot be determined, it is a footnote

  • if theres only a remote chance of damages (estimated or not), you do nothing

<ul><li><p>if it will cause probable damage that can be estimated, there will be a journal entry</p></li><li><p>if it is reasonably possible that it will cause damage that can be estimate, there will be a footnote</p></li><li><p>if it’s probable/reasonably possible but the damage cannot be determined, it is a footnote</p></li><li><p>if theres only a remote chance of damages (estimated or not), you do nothing</p></li></ul><p></p>
4
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what are 2 examples of contingent liabilities?

  1. product warranties - usually based on historical data so damages are easy to estimate; therefore, usually a journal entry

  2. environmental cleanup costs - often likely to occur, but difficult to estimate, so you should make a footnote

5
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what are the journal entries for product warranties

estimate

debit: product warranty expense

  • credit: estimated warranty liability

warranty exercised by customer

debit: estimated warranty liability

  • credit: cash/supplies