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Estimated LiabilitiesEstimated Liabilities
Estimated liabilities have two basiccharacteristics:
1.The liability is known to exist,
2.The precise dollar amount cannot bedetermineduntil a later date.
Estimated liabilities have two basiccharacteristics:
1.The liability is known to exist,
2.The precise dollar amount cannot bedetermineduntil a later date.
Example: An automobilewarranty obligation.
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Short-term obligations to suppliers forpurchases of merchandise and to others for
goods and services.
Merchandiseinventoryinvoices
Shippingcharges
Utility andphone bills
Officesuppliesinvoices
Current Liabilities: AccountsCurrent Liabilities: Accounts
PayablePayable
ExamplesExamples
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Total NotesPayable
Current Notes Payable
Noncurrent Notes Payable
When a company borrows money, a note payable iscreated.
Current Portion of Notes Payable
The portion of a note payable that is due within one year,or one operating cycle, whichever is longer.
Current Liabilities: NotesCurrent Liabilities: Notes
PayablePayable
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Accrued LiabilitiesAccrued Liabilities
Accrued liabilities arise from the recognition ofexpenses for which payment will be made in thefuture. Accrued liabilities are often referred to as
accrued expenses.
Examples include:1.Interest payable,2.Income taxes payable, and3.Accrued payroll liabilities.
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Net Pay
Payroll LiabilitiesPayroll Liabilities
Medicare
Taxes
State and Local
Income TaxesFICA TaxesFederal
Income Tax
Voluntary
Deductions
Gross Pay
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Cash is
received
in
advance.
Cash is sometimes collected from the customerbefore the revenue is actually earned.
Unearned RevenueUnearned Revenue
As the earnings
process is
completed
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Relatively small debt needs canbe filled from single sources.
Banks Insurance Companies Pension Plansoror oror
Long-Term LiabilitiesLong-Term Liabilities
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Large debt needs are often filled byissuing bonds.
Long-Term LiabilitiesLong-Term Liabilities
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With each payment, the
interest portion gets smaller
and the principal portion gets
larger.
Installment Notes PayableInstallment Notes Payable
Each payment covers
interest for the period
AND a portion of the
principal.
Long-term notes that call for a series ofinstallment payments.
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Bonds PayableBonds Payable
Bonds usually involve theborrowing of a large sum ofmoney, called principalprincipal.
The principal is usually paidback as a lump sumlump sum at the endof the bond period.
Individual bonds are oftendenominated with a par value,orface valueface value, of $1,000.
Bonds usually involve theborrowing of a large sum ofmoney, called principalprincipal.
The principal is usually paidback as a lump sumlump sum at the endof the bond period.
Individual bonds are oftendenominated with a par value,
orface valueface value, of $1,000.
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Bonds PayableBonds Payable
Bonds usually carry a stated rate of interest,also called a contract ratecontract rate.
Interest is normally paid semiannually.
Interest is computed as:
Principal Stated Rate Time = InterestPrincipal Stated Rate Time = Interest
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Mortgage
Bonds
Convertible
Bonds
Junk
Bonds
Debenture
Bonds
Types of BondsTypes of Bonds
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