CH10 FINANCIAL

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Department
Accounting & Financial Management
Course
AFM 123
Professor
Peter Blake
Semester
Winter

Description
Chapter 10 Class Notes Liabilities • Recorded at the amount of the obligation on that date • Interest is only owed if time passes • Current liabilities must show loan payments due within one year • E.g. buy merchandise for $1 000 due in 30 days o Accounts payable $1000 • E.g. Sign a promissory note for $2000 due in 30 days plus interest at 12% per annum o Receive $2000 cash; pay back $2020 in 30 days) o Entry today: DR Cash $2000 CR Notes Payable $2000 o Entry in 30 days: DR Notes Payable $2000 DR Interest Expense 20 CR Cash $2020 • E.g. Borrow $2 000 000 from bank to be repaid in equal annual installments over 5 years (i.e. $400 000 to be repaid at end of each year) o When borrow: DR Cash $2 000 000 CR Loan Payable $2 000 000 o 1st month's interest DR Interest Expense CR Cash or Interest Payable o When repay at year end: DR Loan Payable $400 000 CR Cash $400 000 Other Liabilities 1. Unpaid Interest on reporting date • Interest in charged and owed as time passes Example: • On September 1st, ABC Corp. signs a 6 month promissory note for $14 000 + interest at 6% per annum • Year-end date December 31 (Balance Sheet Date) • Legally, they owe $14 000 + 4 months interest therefore they must record liability for interest Sep 1. DR Cash $14 000 CR Notes Payable $14 000 On D
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