Chapter 9 Notes

Liability

A future payment you owe because of something that already happened.

Current Liability

A debt you must pay within 1 year.

Long-Term Liability

A debt that won’t be paid for more than 1 year.

Accounts Payable (A/P)

Money you owe suppliers for stuff you already received.

Accrued Expenses / Accrued Liabilities

Expenses you owe but haven’t paid yet (wages, taxes, etc.).

Deferred Revenue (Unearned Revenue)

Customer paid you first, but you haven't given the product/service yet.

Notes Payable

A formal written loan that lists amount, interest rate, and payment date.

Interest Expense

The cost of borrowing money.

Accounts Payable Turnover Ratio

How fast a company pays its suppliers.

Average Days to Pay Payables

How many days, on average, it takes to pay your bills.

Current Portion of Long-Term Debt

The part of long-term debt that must be paid within the next year.

Refinancing Debt

Replacing a current loan with a new long-term loan (so it stays long-term).

Contingent Liability

A “maybe” debt that depends on the future.

Probable Contingency

Likely to happen → record a liability now.

Reasonably Possible Contingency

Could happen → only put in footnotes.

Remote Contingency

Very unlikely → do nothing.

Working Capital

Current assets − current liabilities (your short-term safety cushion).

Liquidity

Your ability to pay your bills on time.

Working Capital Management

Watching A/R, A/P, inventory, etc. because changes affect cash flow.

Long-Term Notes Payable

Loans that last more than a year.

Bonds Payable

Long-term loans issued to the public.

Lease Liability

Debt created when a company signs a long-term lease agreement.

Operating Lease

Lease where you use the asset but don’t own it; still record lease liability.

Finance Lease

Lease treated like you bought the asset; record asset + liability + interest.

Short-Term Lease

Lease under 12 months; record only rent expense (no asset/liability).

Present Value of a Single Amount

PV of one payment in the future.

Present Value of an Annuity

PV of a series of equal payments over time.