After completing this chapter you should be able to: Describe current and long-term liabilities and their characteristics, identify and describe known current liabilities, explain how to account for contingent liabilities, compute the times interest earned ratio and use it to analyze liabilities, prepare entries to account for short-term notes payable. | CURRENT LIABILITIES AND PAYROLL ACCOUNTING Chapter 11 Chapter 11: Current Liabilities and Payroll Accounting Past Present Future DEFINING LIABILITIES Because of a past event . . . The company has a present obligation . . . For future sacrifices C 1 A liability is a present obligation that grew out of a past event and will require a future sacrifice to extinguish the obligation. Expected to be paid within one year or the company’s operating cycle, whichever is longer. CLASSIFYING LIABILITIES Current Liabilities Expected not to be paid within one year or the company’s operating cycle, whichever is longer. Long-Term Liabilities C 1 Part I. Current liabilities are expected to be paid within one year or the normal operating cycle of the company, whichever is longer. Current liabilities are usually extinguished by payment of current assets. Part II. Long-term liabilities are not expected to be paid or extinguished within one year. In this chapter, we will concentrate on current liabilities. Accounts Payable Sales Taxes Payable Unearned Revenues Short-Term Notes Payable KNOWN (DETERMINABLE) LIABILITIES Payroll Liabilities Multi-Period Known Liabilities C 2 For the accounts shown, we have been able to determine all three variables discussed on the previous screen, so these are known, or determinable, liabilities. Let’s begin our discussion of current liabilities by looking at sales tax accounting. A written promise to pay a specified amount on a definite future date within one year or the company’s operating cycle, whichever is longer. SHORT-TERM NOTES PAYABLE P 1 Let’s spend some time looking at short-term, or current, notes payable. A note payable is a written promise to pay a specific amount at a definite future date. Short-term notes normally bear interest. Note Date End of Period Maturity Date An adjusting entry is required to record Interest Expense incurred to date. END-OF-PERIOD ADJUSTMENT TO NOTES P 1 If a short-term note payable is . | CURRENT LIABILITIES AND PAYROLL ACCOUNTING Chapter 11 Chapter 11: Current Liabilities and Payroll Accounting Past Present Future DEFINING LIABILITIES Because of a past event . . . The company has a present obligation . . . For future sacrifices C 1 A liability is a present obligation that grew out of a past event and will require a future sacrifice to extinguish the obligation. Expected to be paid within one year or the company’s operating cycle, whichever is longer. CLASSIFYING LIABILITIES Current Liabilities Expected not to be paid within one year or the company’s operating cycle, whichever is longer. Long-Term Liabilities C 1 Part I. Current liabilities are expected to be paid within one year or the normal operating cycle of the company, whichever is longer. Current liabilities are usually extinguished by payment of current assets. Part II. Long-term liabilities are not expected to be paid or extinguished within one year. In this chapter, we will concentrate on current
