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

Three methods of asset disposal

• Sale- most common method to dispose of a long-term asset 

• Retirement- occurs when a long-term asset is no longer useful but cannot be sold

• Exchange- occurs when two companies trade long-term assets 

Liability- is an obligation of a company to transfer some economic benefit in the future (accounts payable, notes payable, salaries payable) 

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

Line of credit- informal agreement, 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, an existing uncertain situation that might result in a loss

Warranty- for a product 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