Chapter 7 Accounting for and Presentation of liabilities

Current Liabilities

Due in less than 1 year

1. Accounts Payable

2. Short-term debt (Notes Payable)

3. Current Maturities of long term debt

4. Unearned revenue or deferred credits

5. other accrued liabilities

Non Current Liabilities

Due in more than 1 year

1. Long term debt (bonds payable)

2. Deferred Tax liabilities

3. Minority interest in subsidiaries

Short- term debt Journat Entry for Bank loan

Cash received (debit)

Short-term debt received (credit)

Straight Interest (APR) Calculation

APR in % = Interest paid / money available x time (in years)

Interest Expense (monthly but have not paid yet) Journal Entry

Dr. Interest Expense (increases)

Cr. Interest Payable (Increases)

Discount Interest

When interest is paid in advance at the time of principle being received.

Interest Discount Basis Calculation

Principle - interest = Proceeds (what company receives)

Interest Discount Basis (APR) Calculation

APR = Interest paid / money available (after discount) x time (in years)

Interest Discount (Money received) Journal Entry

• Cash Received (Debit, Increases)

• Discount on short term debt - total amount (Debit, liability Decreases)

• Short- term debt (Credit, Increases)

Prepaid Interest (monthly) Journal Entry

Interest must be adjusted each month.

• Interest Expense (Debit, Increases)

• Discount on short- term debt - monthly (Credit, Increases)