Liabilities

Unit Ten

Learning Objectives Unit Ten

to understand the nature of liabilities;

to learn about current liabilities and long-term liabilities.

Your credit card balance is probably due within a short time, such as 30 days. Such liabilities that are to be paid out of current assets and are due within a short time, usually within one year, are called current liabilities. Most current liabilities arise from two basic transactions:

1. Receiving goods or services prior to making payment.

2. Receiving payment prior to delivering goods or services.

Warming-up Unit Ten

Text Skimming

Ask students to read the text quickly and ask them some questions.

1. What are the differences between current liabilities and long-term liabilities?

2. What are the differences between the bond at a discount and at premium?

3. What are the examples of short-term liabilities?

Vocabulary Unit Teneliminate due invoiceconformity pension maturity datedividend declaration retained earningspremium

排除，删除 应支付的， ( 票据等 ) 到期的 发票 相似；一致 养老金 到期日 红利，股息 报关，纳税品的申报 留存收益 佣金

Presentation

The definition of liabilities

Liabilities are current obligations that occur

because of past transactions or events and

will result in the payment or economic

benefits in the future.

It includes the following features:

Liabilities are resulted from past transactions or events of the company.

They are the current obligations that

are born by company.

Liabilities are eliminated by future payment

of an asset or the future performance of a service.

liabilities

current liabilities

long-term liabilities

Current liabilities

Current liabilities are short-term obligations that usually must be paid from current assets or through the creation of other current liabilities within a year or the operating cycle whatever is longer.

Long-term liabilities

Long-term liabilities represent obligations of the firm that generally are due more than one year after the balance sheet date, or longer than one operating cycle of the firm.

Current Liabilities

(1) Accounts Payable and Notes Payable

(2) Other Current Liabilities

Other Current Liabilities

Short-term Loan

Advances from Customer

Dividends

Payroll

Other Payables

(1) Accounts Payable and Notes Payable

Accounts payable are short-term obligations to suppliers for purchasing materials, merchandises or services.

In accounting practice, the recording of accounts payable is in accordance with invoices when

merchandise is received and examined to ensurethat merchandise purchased is in conformity withthe contract in amount, quantity, categories and

quantities.

(1) Accounts Payable and Notes Payable

Notes payable are written acknowledgement signed by the maker and promised by the acceptor to pay a definite amount of money during a period of time. It includes commercial accepted draft and bank accepted draft.

商业承兑汇票 银行承兑汇票

(2) Other Current Liabilities

In China, other current liabilities include short-term loans, advances from customer, taxes payable, interest payable, dividends payable, other payables, etc.

Short-term Loan

Short-term loans are various loans within one year borrowed from banks and other financial organizations and mainly concerned about the need of normal operation.

Advances from Customer

Advances from customer are the amount received from the purchaser in advance, which is discharged by goods rather than money.

Dividends

Dividends refer to the distribution of earnings by a corporation. There is usually a short time between the date of declaration and the payment of dividends. During that short time, the declared dividends are current liabilities of the corporation, called Dividends payable.

Payroll

Employee’s payroll includes wages, bonuses, allowances, subsidies, and social insurances etc. It represents a major element in the cost construction of most businesses.

Other Payables

Other payables are the various payables except notes payable, accounts payable, advances from customer, employees’ payroll payable, taxes payable, dividends payable, etc. The business should establish “other payables” account to record the increases and decreases.

Long-term Liabilities

Long-term liabilities refer to non-current liabilities, including long-term loans and bonds payable etc.

（ 1 ） Long-term Loans

Long-term loans are mainly concerned with the construction of fixed assets, extending project, etc. It is the principal element of long-term liabilities. The requirement is to reflect the borrowing, interest settlement and the repayment of the principal and interest.

（ 2 ） Long-term Bond

The long-term bond is issued security for the purpose of raising fund and promise to pay back within a certain period of time. It is written certificate.

The basic elements of the long-term bond are as follows:

The face value of the bond.

The issuing price of the bond.

The repayment period.

The date of paying the interest.

The bond rate.

Notes Unit Ten Liabilities can be classified in the balance sheet as current

or long-term according to the time of the company holding the liabilities.

根据公司偿付债务的时间长短，负债在资产负债表中可以分为流动负债和长期负债。

In China, other current liabilities include short-term loans, advances from customer, taxes payable, interest payable, dividends payable, other payables etc..

在中国，其他流动负债包括短期借款、预收账款、应付职工薪酬、应交税费、应付利息、应付股利和其他应付款等，以及将于一年到期的非流动负债。

Notes Unit Ten Advances from customer are the amount received from the

purchaser in advance, which is discharged by goods rather than money.

预收账款是指企业按照合同规定向购货单位预收的款项。预收账款不是以货币偿付而是以货物偿付。

Employee’s payroll includes wages, bonuses, allowances, subsidies, and social insurances etc.. It represents a major element in the cost construction of most businesses.

职工的薪酬包括工资、奖金、津贴、补贴、社会保险等等。它代表了大多数公司的主要成本构成要素。

Notes Unit Ten debenture bond: a bond that is backed by the credit of the

issuer but not by any specific collateral

信用债券，无担保债券

convertible bond: a bond that can be converted to other securities under certain conditions 兑换债券

contingent liabilities 或有负债 这是指一项负债的发生，取决于某一特定未来事项的结果。

例如：违约、侵犯特许权、人身或财产损害的败诉赔款。

deferred credit 递延贷项，或称递延收入 这是指尚未获得而预收的收入或收益。例如：预收租金、预

收运费等项目，即顾客的预付款。

Liabilities

Unit Ten

Review

1. Ask students to read all the new words and phrases.

2. Review the language points.

II. Fill in the blanks with the words given below

1. ___________________ is revenues that have been collected but not earned, a liability until the goods or services are provided.

2. _________________ are potential liabilities arising from a past transaction and dependent on a future event.

3. ___________ are a distribution of earnings by a corporation.

Exercises Unit Ten

Advances from customer

Contingent liabilities

contingent liabilities liability advances from customer premium dividends discount

Dividends

4. When bonds are sold at a _________ or ________, the result is an adjustment of the interest rate in the bonds from the face rate to an effective rate that is close to the market rate when the bonds were issued.

5. A _______ is a legal obligation requiring the future payment of an asset, the performance of a service.

Exercises Unit Ten

discount premium

liability

Exercises Unit Ten

III. Decide whether the following statements are true or false. Write T for true and F for false.

( ) 1. Interest of 5% on 700 yuan for 90 days would be computed as follows: 0.05*700*90/360.

( ) 2. A note dated December 14 and due February 14 has a duration of 60 days.

( ) 3. Allowance for bad debts is a contra account to account payable.

T

F

F

Exercises Unit Ten

( ) 4. Loans to offices of the company should be included in short-term loans on the balance sheet.

( ) 5. In China, bonds can be issued at a par.

F

T

Exercises Unit Ten

IV. Choose the best answer.

1. The rate of interest actually earned by bondholders is called the ______.

A. coupon rate B. effective yield

C. nominal rate D. stated rate

2. Bonds will sell t a premium when the

A. stated rate is higher than the nominal rate

B. stated rate is higher than the coupon rate

C. effective yield is lower than the market rate

D. effective yield is lower than the stated rate

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Exercises Unit Ten

3. Typical liability accounts include:

A.accounts payable, bank loan, wages payable, drawings

B.accounts payable, bank overdraft, wages payable, stationery

C.accounts receivable, bank overdraft, wages payable, unearned revenue

D.accounts payable, borrowing from the public, bank overdraft, wages payable

4. Which of the following usually is not a current liability?

A.Withheld Income Taxes B. Deposits Received from Customers

C.Deferred Tax Payable D. All of these.

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Exercises Unit Ten

5. After bonds have been issued, their market value can be expected to _____.

A.rise as any premium is amortized B.fall if interest rates rise

C.fall as any discount is amortized D.rise if interest rates rise

6. When the interest payment dates of a bond are May 1 and November 1, and a bond issue is sold on June 1, the amount of cash received by the issuer will be _____.

A. decreased by accrued interest from June 1 to November 1

B. decreased by accrued interest from May 1 to June 1

C. increased by accrued interest from May 1 to June 1

D. increased by accrued interest from June 1 to November 1

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Assignments

Do Ex. Ⅱ in the exercise books.