Int.2 Chapter 12: Current Liabilities

Current liabilities

the obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities.

Accounts Payable (Trade Accounts Payable)

balances owed to others for goods, supplies, or services purchased on open account; arise because of the time lag between the receipt of services or acquisition of assets and the payment for them

Notes Payable

written promises to pay a certain sum of money on a specified future date; rise from purchases, financing, or other transactions

Notes Trade Payable

part of the sales/purchases transaction instead of the normal extension of credit.

Old Age, Survivor, and Disability Insurance (OASDI)

benefits for certain individuals and their families that arise from funds from taxes levied on both the employer and the employee.

FICA (Federal Contribution Insurance Act)

government taxes both the employer and the employee at the same rate, which is currently 6.2% based on the employee’s gross pay up to a $142,800 annual limit; OASDI tax

Social Security Tax

combination of FICA and the federal Medicare tax

Federal Unemployment Tax Act (FUTA)

Federal-state unemployment program that provide financial assistance to eligible workers who may have been laid off through no fault of their own.

Compensated Absences

Paid absences from employment for such items as vacations, illness, holidays, and jury duties. Generally, the two most significant fringe benefits related to compensated absences are vacation pay and sick pay

Vested rights

employer has an obligation to make payment to an employee even after terminating his or her employment

Accumulated rights

Rights that are not vested, but are accumulated rights for which the employer must make an accrual.

Unearned (deferred) Revenue

When company receives cash in advance with an obligation to perform task in the future

Refundable Deposit

refers to cash collected from a customer that a company expects to return after a specified period or when certain conditions are satisfied

Contingency

an existing condition, situation, or set of circumstances involving uncertainty as to possible loss (loss contingency) or gain (gain contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur

Loss Contingencies

Possible losses; liability incurred as a result of a loss contingency is by definition a contingent liability

Contingent Liability

depend on the occurrence of one or more future events to confirm either the amount payable, the payee, the date payable, or its existence.

Probable

The future event or events are likely to occur.

Reasonably Possible

The chance of the future event or events occurring is more than remote but less than likely.

Remote

The chance of the future event or events occurring is slight.

Warranty

promise made by a seller to a buyer to make good on a deficiency of quantity, quality, or performance in a product.

Assurance-Type Warranty

Type of warranty that is included in the sales price of a company’s product

Service-Type Warranty

Warranty that is not included in the sales price of the product

Current Maturities of Long Term Debt

Classified as current liability

Current Ratio

ratio of total current assets to total current liabilities; shows how many times the current assets can cover, or be used to extinguish, the current liabilities

Working Capital

excess of current assets over current liabilities

Acid-Test (Quick Ratio)

Relates total current liabilities to cash, short-term investments, and receivables

• Does not include inventories or prepaid expenses