Lecture Financial accounting (7/e): Chapter 9 - Robert Libby, Patricia A. Libby, Daniel G. Short

Chapter 9 - Reporting and interpreting liabilities. After studying this chapter, you should be able to: Define, measure, and report current liabilities; use the quick ratio; analyze the accounts payable turnover ratio; report notes payable and explain the time value of money; report contingent liabilities; explain the importance of working capital and its impact on cash flows; report long-term liabilities; compute present values; apply present value concepts to liabilities. | Reporting and Interpreting Liabilities Chapter 9 Chapter 9: Reporting and Interpreting Liabilities Liabilities Defined and Classified Defined as probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities Liabilities are probable debts or obligations that result from past transactions, which will be paid with assets or services. Current liabilities are short-term obligations that will be paid within the current operating cycle or within one year of the balance sheet date, whichever is longer. Noncurrent liabilities include all other liabilities. Current Liabilities Here is a summary of some common current liabilities. Accounts payable, also known as trade accounts payable, are obligations to pay for goods and services used in the basic operating activities of the business. Accrued liabilities, also known as accrued expenses, are obligations related to expenses that have been incurred but have not been paid at the end of the accounting period. Notes payable are obligations due supported by a formal written contract. Deferred revenues, also known as unearned revenues, are obligations arising when cash is received prior to the related revenue being earned. Gross Pay Payroll Taxes Net Pay Medicare Tax State and Local Income Taxes Social Security Tax Federal Income Tax Voluntary Deductions Less Deductions: All payrolls are subject to a variety of taxes including federal, state, and local income taxes, Social Security taxes, and federal and state unemployment taxes. Employees pay some of these taxes and employers pay others. Employers are required to withhold income taxes for each employee. The amount of income tax withheld is recorded by the employer as a current liability between the date of the deduction and the date the amount is remitted to the government. The Social Security taxes paid by employees . | Reporting and Interpreting Liabilities Chapter 9 Chapter 9: Reporting and Interpreting Liabilities Liabilities Defined and Classified Defined as probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities Liabilities are probable debts or obligations that result from past transactions, which will be paid with assets or services. Current liabilities are short-term obligations that will be paid within the current operating cycle or within one year of the balance sheet date, whichever is longer. Noncurrent liabilities include all other liabilities. Current Liabilities Here is a summary of some common current liabilities. Accounts payable, also known as trade accounts payable, are obligations to pay for goods and services used in the basic operating activities of the business. Accrued liabilities, also known as accrued expenses,

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