Chapter
Current Liabilities 11
Accounting
class 1
before Mid
Accounting eagle
Chapter 11 Part 1
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Chapter
Current Liabilities 11
Current Liabilities and Payroll Accounting
What Is a Current Liability?
a debt that a company expects to pay (1) from existing current
assets or through the creation of other current liabilities, and (2)
within one year or the operating cycle, whichever is longer.
❖ Debts that do not meet these criteria are long-term liabilities.
Example 1 To be classified as a current liability, a debt must be
expected to be paid within:
a.one year b. the operating cycle
c.2 years d.(a) or (b), whichever is longer
Financial statement users want to know???
1)whether a company’s obligations are current or long-term.
A company that has more current liabilities than current assets often lack
liquidity, or short-term debt-paying ability.
2) users want to know the types of liabilities a company has.
If a company declares bankruptcy, a specific, predetermined order of
payment to creditors exists.
Thus, the amount and type of liabilities are of critical importance.
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Chapter
Current Liabilities 11
The different types of current liabilities
Current liabilities include notes payable, accounts payable, unearned revenues,
and accrued liabilities such as sales taxes payable, salaries and wages payable,
and interest payable.
Notes Payable
•Written promissory note
•Frequently issued to meet short-term financing needs
•Requires borrower to pay interest
•Issued for varying periods.
Example 2 assume that First National Bank agrees to lend $100,000
on September 1, 2022, if Cole Williams Co. signs a $100,000, 12%,
four-month note maturing on January 1.
1-record issuance of 12%, 4-month note to First National
Bank.
2- record the adjusting entry to accrue interest for 4 months.
3-record payment of First National Bank interest-bearing note
and accrued interest at maturity.
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Chapter
Current Liabilities 11
Solution
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Chapter
Current Liabilities 11
Sales Taxes Payable
•Sales taxes are expressed as a stated percentage of sales
price
•Selling company (retailer)
✓ collects tax from customer
✓ enters tax separately in cash register or includes in total
receipts
✓ remits the collections to state’s department of revenue
✓ example3, if the March 25 cash register reading for Cooley
Grocery shows sales of $10,000 and (sales tax rate of 6%).
1- Record the sales journal entry.
2- Record the entry for remits the taxes to the taxing agency
3- Repeat the example when total sales equal 10,600.
Solution
1)
2) Dr sales tax payable 600
Cr cash 600
3) the net sales amount:
$10,600 ÷1.06= $10,000
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Chapter
Current Liabilities 11
Unearned Revenues
Cash received before the company
•delivers goods or •provides services.
Example4 assume that Superior University sells 10,000 season
football tickets at $50 each for its five-game home schedule.
1) Record the entry for sale of season tickets.
2) Record the adjusting entry after As each game is completed.
Solution
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Chapter
Current Liabilities 11
Unearned Current Maturities of Long-Term Debt
✓ Portion of debt that comes due in current year
✓ No adjusting entry required
Example5 Wendy Construction issues a five-year, interest-bearing
$25,000 note on January 1, 2019. This note specifies that each January
1, starting January 1, 2020, Wendy should pay $5,000 of the note.
When the company prepares financial statements on December 31,
2019,
1.Amount to be reported as a current liability? __5,000_________
2.Amount to be reported as a long-term liability? ___20,000______
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