Chapter 9 - Accounting for current liabilities and payroll. This chapter introduces other liabilities with known amounts due: notes payable, sales tax payable, and payroll liabilities; and contingent liabilities including warranties payable and vacation pay. Discussion in this chapter is limited to current liabilities, those that are payable within one year or the operating cycle, whichever is longer. | Chapter Nine Accounting for Current Liabilities and Payroll McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. This chapter introduces other liabilities with known amounts due: notes payable, sales tax payable, and payroll liabilities; and contingent liabilities including warranties payable and vacation pay. Discussion in this chapter is limited to current liabilities, those that are payable within one year or the operating cycle, whichever is longer. Notes Payable and the Going Concern Assumption Do companies estimate the amount of payables that they are going to pay? Under the going concern assumption , companies expect to pay their obligations in full. 9- Previously, we have accounted for promissory notes from the perspective of the lender. Here we are going to examine accounting for notes payable as the borrower, or maker of the note. When we extended credit to others, we estimated an amount that we anticipated would be uncollectible. Do we do the same for our payables? That is, do we estimate an amount that we do not think we will be able to pay? The answer is no. Under the going concern in accounting, we assume that our company will continue as a viable entity, and that we expect to pay our observations in full. Let us now look at some transactions involving notes and interest payable. On September 1, 2013, Herrera Supply Company (HSC) borrowed $90,000 from the National Bank. Increase assets (cash). Increase liabilities (notes payable). 9- Part I On September 1, 2013, Herrera Supply Company borrowed $90,000 cash from National Bank by issuing a 1-year note at 9% interest. This transaction increases the Cash asset account and increases the Notes Payable liability account. Part II Here is the effect of this transaction on the financial statements model. This transaction is classified as a financing activity on the statement of cash flows. Part III The journal entry would be a debit to | Chapter Nine Accounting for Current Liabilities and Payroll McGraw-Hill/Irwin McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. This chapter introduces other liabilities with known amounts due: notes payable, sales tax payable, and payroll liabilities; and contingent liabilities including warranties payable and vacation pay. Discussion in this chapter is limited to current liabilities, those that are payable within one year or the operating cycle, whichever is longer. Notes Payable and the Going Concern Assumption Do companies estimate the amount of payables that they are going to pay? Under the going concern assumption , companies expect to pay their obligations in full. 9- Previously, we have accounted for promissory notes from the perspective of the lender. Here we are going to examine accounting for notes payable as the borrower, or maker of the note. When we extended credit to others, we estimated an amount that we anticipated
