7&8 P2

Asset turnover

Measures the sales per dollar of assets invested.

Impairment

Occurs when the expected future cash flows generated for a long-term asset fall below its book value.

Methods of asset disposal

Three methods include Sale, Retirement, and Exchange.

Sale (asset disposal)

The most common method to dispose of a long-term asset.

Retirement (asset disposal)

Occurs when a long-term asset is no longer useful but cannot be sold.

Exchange (asset disposal)

Occurs when two companies trade long-term assets.

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.

Notes payable

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

Line of credit

An informal agreement that permits a company to borrow up to a prearranged limit.

Commercial paper

Borrowing from another company rather than a bank.

Accounts payable

Amounts owed to suppliers of merchandise or services.

Employee costs

Federal and state income taxes.

Employer costs

Additional FICA tax on behalf of the employee.

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.

Contingent liabilities

An uncertain situation that can result in a gain or loss for a company.

Warranty

Represents a liability for a company at the time of the sale if it meets the criteria for recording a contingent liability.

Liquidity

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