Accounting Chapter 8

current liabilities

due within one year from the balance sheet date

ex. accounts payable, current portion of long term debt, sales tax collected from customers, advance payment from customers

long term liabilities

due in more than one year

notes payable

Written promises to repay amounts borrowed plus interest

issue notes payable

debit cash and credit notes payable

adjusting entry to record interest

debit interest expense and credit interest payable

records repayment of the note and interest

debit notes payable, debit interest payable, debit interest expense, credit cash

notes recievable issued

debit notes receivable, credit cash

interest revenue generate from a notes receivable

debit interest receivable and credit interest revenue

receive notes receivable

debit cash, credit notes receivable, credit interest receivable, credit interest revenue

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

commercial paper

borrowing from another company rather than from a bank

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

employee investments in retirement or saving plans

employer costs

federal and state unemployment taxes

employer matching portion of Social Security and Medicare (FICA taxes)

employer contributions for health, dental, disability, and life insurance

employer contributions to retirement or saving plans

fringe benefits

additional employee benefits paid for by the employee

record employee salary expense, withholdings, and salaries payable

debit salaries expense, credit employee income tax payable, FICA Tax payable, salaries payable

record employer provided fringe benefits as salaries expense and records the related credit balances to fringe benefits payable

debit salaries expense, credit fringe benefits payable(company 1), credit fringe benefits payable (credit 2)

record employee payroll taxes

debit payroll tax expense, credit FICA tax payable, credit unemployment tax payable

record sale of the gift card

debit cash, credit deferred revenue

record customer purchasing merchandise

debit deferred revenue, credit sales revenue

record buying product with sales tax

debit cash, credit sales revenue, and credit sales tax payable

current portion of long term debt

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

record reclassification

debit notes payable (long-term), credit notes payable (credit)

contingent liabilities

an existing uncertain situation that might result in a loss

criteria for reporting a contingent liability

1. the likelihood of payment is

   1. probable - likely to occur

   2. reasonably possible - more than remote but less than probable

   3. remote - the chance is right

2. the amount of payment is

   1. reasonably estimate or

   2. not reasonably estimate

A contingent liability is recorded only if a loss is probable and the amount is a reasonably estimate

record a contingent liability

debit loss, credit contingent liability

record liability for warranties

debit warranty expense, credit warranty liability

record payment for warranty

debit warranty liability, credit cash

contingent gain

an existing uncertain situation that might result in a gain

lidquidity

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

working capital

current assets - current liabilities

current ratio

current assets/current liabilities

acid test ratio

acid test ratio = (cash + current investments + accounts receivable)/current liabilities

record cost of units sold

debit cost of goods sold, credit inventory

record sale

debit cash, credit accounts receivable, credit sales revenue

record write off of accounts receivable as uncollectible

debit allowance for uncollectible accounts, credit accounts receivable

adjusting entry for depreciation

debit depreciation expense, credit accumulated depreciation

adjusting entry for estimated future uncollectible amounts

debit bad debt expense, credit allowance for uncollectible amounts

adjusting entry for gift cards redeemed

debit deferred revenue, credit sales revenue