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Lecture

Lecture Notes CH9.pdf

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Department
Commerce
Course
COMMERCE 1BA3
Professor
Aadil Merali Juma
Semester
Summer

Description
CHAPTER 9 LiabilitiesLEARNING OBJECTIVES After studying Chapter 9 you should be able to1 Explain and account for current liabilities 2 Explain the types features and pricing of bonds payable 3 Account for bonds payable 4 Calculate and account for interest expense on bonds payable 5 Explain the advantages and disadvantages of financing with debt versus equity 6 Analyze and evaluate a companys debtpaying ability 7 Describe other types of longterm liabilities8 Report liabilities on the balance sheet CHAPTER OUTLINEOBJECTIVE 1 Explain and account for current liabilitiesACurrent liabilities are obligations due within the longer of one year or the companys normal operating cycleBThe are two kinds of current liabilities 1 Known amounts 2 Estimated amountsCCurrent liabilities of a known amount include 1 Shortterm borrowings are needed to cover temporary shortfalls in cash A line of credit allows a company to access credit on an asneeded basis up to maximum amount set by the lender 2 Accounts payable are amounts owed for goods or services purchased on credit or on account 3 Accrued liabilities accrued expenses results from an expense incurred but not yet paid which includes salaries and wages payable interest payable and income taxes payable 4 Shortterm notes payable are notes due within one year a When the note is issued it can be for cash or to purchase assets and the entry isCash XX Note Payable XX b An adjusting entry must be recorded to accrue interest incurred Interest Expense XX Interest Payable XXc The following entry is required when the note is paidNote Payable XX Interest Expense XX Interest Payable XXCash XXIt is important to keep Interest Payable separate from Note Payable The accrual entry made at the end of the period will never affect the Note Payable balance Interest is recorded in a separate accountOn December 1 Thomas Company borrowed 10000 on a 90day 12 note What is the amount of accrued interest on December 31 10000 X 012 X 303659863 What is the entry required on the maturity date Note Payable 1000000 Interest Payable 9863 Interest Expense 19726Cash 1029589 5 Sales tax payable reflects taxes levied on the sale of goods and services which sellers collect from customer and must periodically remit to the government a Goods and services tax GST is a valueadded tax which applies to most goods and services Only the ultimate consumer pays GST GST registrants who are not final consumers can deduct GST paid input tax credit from GST collected and only remit the difference to the federal government b Provincial or regional sales tax PST is a retail tax applied to goods and services purchased by individuals or business with rates varying by province or region c Harmonized sales tax HST combines PST and GST and is a value added tax and is treated the same was as GST d The entry to record PST and GST when a company makes a sale is as followsAccounts Receivable or Cash XX Cost of Goods Sold XX Sales Revenue XX Inventory XX GST PayableXX PST Payable XX e The entry to record HST when a company makes a sale is as follows Accounts Receivable or Cash XX Cost of Goods Sold XX Sales Revenue XX Inventory XX HST PayableXX
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