Chapter 9 Accounting

Chapter 9 Accounting

Term Definition
Liabilities Probable debts or obligations that result from PAST transactions, which will be paid with assets or services.
Current Liability Maturity of 1 year or less
Non-Current Liability Maturity greater than 1 year
Debt Considered riskier than equity (interest is a legal obligation that MUST be repaired)
How are Liabilities measured? at their cash equivalent (what the creditor would accept to cancel the debt immediately)
Used to analyze liquidity Working Capital and Current Ratio
Current Liabilities expected to be paid 1) using a current asset (usually cash) or service2) within one year or operating cycle, whichever is longer
Current Liability examples 1. Accounts Payable2. Accrued Liabilitiesa) wages payableb) sales taxes payablec) payroll taxes payable d) interest payable3. unearned revenue4. current maturities of L-T debta) portion of LT debt that will be due within next year
Current Liabilities Rules: estimated (contingent) liabilities 1. Recorded (record in JE)2. Contingent (add to footnotes)3. Do Nothing
Recorded (record in JE) Probable and can be estimated (probable that you will lose and have to pay)
Contingent (add to footnotes) Probable and can NOT be estimated
Do Nothing Remote chance
Interest-Bearing Notes Principal & Interest due at maturity
Non-Interest-Bearing Notes Interest is deducted in advance
Simple Interest Interest accrued over time on principal only (not in new amount)
Present Value (PV) The equivalent value of a future amount discounted back to the present time (eliminates the compounding of interest over that time period)
N time period (# of compounding periods)
I Interest rate corresponding to number of periods
Annuity series of equal payments
How is interest usually expressed? an annual percentage rate (APR)
Present Value of a single sum
Ordinary Annuity Pmt. or receipt made at end of each period
Present Value of Ordinary Annuity (PVOA) An amount that if invested at a compound interest now, would provide for series of equal payments at the end of each period in the future

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