Chapter 8: Current Liabilities

Flashcards covering the key vocabularly for Chapter 8: Current Liabilities

Liability

An obligation of a company to transfer some economic benefit in the future.

Current Liabilities

Usually payable within one year from the balance sheet date.

Long-Term Liabilities

Payable in more than one year from the balance sheet date

Operating Cycle

The length of time from spending cash to provide goods and services to a customer until collection of cash from that customer.

Notes Payable

Note signed by a firm promising to repay the amount borrowed plus interest.

Accounts Payable

Amounts owed to suppliers of merchandise or services, sometimes called trade accounts payable.

Employee Costs

Federal and state income taxes, employee portion of Social Security and Medicare (FICA taxes), employee contributions for health, dental, disability, and life insurance and Employee investments in retirement or savings plans.

Employer Costs

Federal and state unemployment taxes, employer matching portion of Social Security and Medicare, employer contributions for health, dental, disability, and life insurance and Employer contributions to retirement or savings plans.

Fringe Benefits

Additional employee benefits paid for by the employer, such as health, dental, disability, and life insurance and Contributions to retirement or savings plans.

Deferred Revenue

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

Sales Tax Payable

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

Current Portion of Long-Term Debt

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

Contingencies

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

Contingent Liability

An existing uncertain situation that might result in a loss.

Liquidity

Refers to having sufficient cash or other current assets to pay currently maturing debts.

Working Capital

Measure of current assets remaining after paying current liabilities (Current assets - Current liabilities).

Current Ratio

The amount of current assets available for every $1 of current liabilities (Current assets / Current liabilities).

Acid-Test Ratio

The amount of “quick assets” available for every $1 of current liabilities (Cash + Current investments + Accounts receivable / Current liabilities).