Copyright © 2012 The McGraw-Hill Companies,
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Liabilities Liabilities
Chapter 10
The Nature of Liabilities The Nature of Liabilities
Defined as debts or obligations arising from past transactions or events.
Defined as debts or obligations arising from past transactions or events.
Maturity = 1 year or less Maturity > 1 year
Current Liabilities
Noncurrent Liabilities
Distinction Between Debt and Equity Distinction Between Debt and Equity
The acquisition of assets is financed from two sources:
Funds from creditors, with a definite due date, and
sometimes bearing interest.
Funds from owners.
Estimated Liabilities Estimated Liabilities
Estimated liabilities have two basic characteristics:
1.The liability is known to exist,
2.The precise dollar amount cannot be determined until a later date.
Estimated liabilities have two basic characteristics:
1.The liability is known to exist,
2.The precise dollar amount cannot be determined until a later date.
Example: An automobile warranty obligation.
Short-term obligations to suppliers for
purchases of merchandise and to others for goods and services.
Short-term obligations to suppliers for
purchases of merchandise and to others for goods and services.
Merchandise inventory
invoices Merchandise
inventory invoices
Shipping charges Shipping
charges
Utility and phone bills
Utility and phone bills
Office supplies invoices
Office supplies
invoices
Current Liabilities: Accounts Payable Current Liabilities: Accounts Payable
Examples Examples
Total Notes Payable
Current Notes Payable Noncurrent Notes Payable When a company borrows money, a note payable is
created.
Current Portion of Notes Payable
The portion of a note payable that is due within one year, or one operating cycle, whichever is longer.
When a company borrows money, a note payable is created.
Current Portion of Notes Payable
The portion of a note payable that is due within one year, or one operating cycle, whichever is longer.
Current Liabilities: Notes Payable
Current Liabilities: Notes Payable
Current Liabilities: Notes Payable Current Liabilities: Notes Payable
PROMISSORY NOTE
Location Date
after this date promises to pay to the order of
the sum of with interest at the rate of per annum.
Miami, Fl Nov. 1, 2011
Six months Porter Company
John Caldwell
Security National Bank
$10,000.00 12.0%
Treasurer and Senior VP Signed:
Title:
Accrued Liabilities Accrued Liabilities
Accrued liabilities arise from the recognition of expenses for which payment will be made in the future. Accrued liabilities are often referred to as
accrued expenses.
Accrued liabilities arise from the recognition of expenses for which payment will be made in the future. Accrued liabilities are often referred to as
accrued expenses.
Examples include:
1.Interest payable,
2.Income taxes payable, and 3.Accrued payroll liabilities.
Relatively small debt needs can be filled from single sources.
Relatively small debt needs can be filled from single sources.
Banks
or or
Insurance Companiesor or
Pension PlansLong-Term Liabilities
Long-Term Liabilities
Large debt needs are often filled by issuing bonds.
Large debt needs are often filled by issuing bonds.
Long-Term Liabilities
Long-Term Liabilities
Maturing Obligations Intended to be Maturing Obligations Intended to be
Refinanced Refinanced
One special type of long-term liability is an obligation that will mature in the current period but that is expected to be refinanced
on a long-term basis.
One special type of long-term liability is an obligation that will mature in the current period but that is expected to be refinanced
on a long-term basis.
If management has both the intend and ability to refinance soon-to-mature obligations on a
long-term basis, these obligations are classified as long-term liabilities.
Bonds Payable Bonds Payable
Bonds usually involve the borrowing of a large sum of money, called principal. principal
The principal is usually paid
back as a lump sum at the end lump sum of the bond period.
Individual bonds are often
denominated with a par value, or face value, of $1,000. face value
Bonds usually involve the borrowing of a large sum of money, called principal principal.
The principal is usually paid
back as a lump sum lump sum at the end of the bond period.
Individual bonds are often
denominated with a par value,
or face value face value, of $1,000.
Bonds Payable Bonds Payable
Bonds usually carry a stated rate of interest, also called a contract ratecontract rate.
Interest is normally paid semiannually.
Interest is computed as:
Principal × Stated Rate × Time = Interest Principal × Stated Rate × Time = Interest
Mortgage Bonds Mortgage
Bonds
Convertible Bonds
Convertible
Bonds Junk
Bonds Junk Bonds Debenture
Bonds Debenture
Bonds
