Chapter 8: Current Liabilities

Acid-test Ratio

Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.

Commercial Paper

Borrowing from another company rather than from a bank.

Contingencies

Uncertain situations that can result in a gain or a loss for a company.

Contingent Gain

An existing uncertain situation that might result in a gain.

Contingent Liability

An existing situation that might result in a loss.

Current Liabilities

Debts that, in most cases, are due within one year from the balance sheet date. However, when a company has an operating cycle longer than a year, its current liabilities are defined by the length of the operating cycle, rather than by the length of one year.

Current Portion of Long-term Debt

Debt that will be paid within one year from the balance sheet date.

Current Ratio

Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.

Debt Covenant

An agreement between a borrower and a lender requiring certain minimum financial measures be met or the lender can recall the debt.

Deferred Revenue

Cash received in advance from a customer for products or services to be provided in the future.

FICA Taxes

Based on the Federal Insurance Contributions Act; tax withheld from employees' paychecks and matched by employers for Social Security and Medicare.

Fringe Benefits

Additional employee benefits paid for by the employer.

Gift Card Breakage

The point in time when gift cards expire or when the likelihood of redemption by customers is viewed as remote.

Liability

A present responsibility to sacrifice assets in the future due to a transaction or other event that happened in the past.

Line of Credit

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

Liquidity

Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts.

Notes Payable

Written promises to repay amounts borrowed plus interest.

Quick Assets

Includes only cash, current investments, and accounts receivable.

Sales Tax Payable

Sales tax collected from customers by the seller, representing current liabilities payable to the government.

Unemployment Taxes

A tax to cover federal and state unemployment costs paid by the employer on the behalf of its employees.

Working Capital

The difference between current assets and current liabilities.