MGAB01H3 Lecture : Accounting for Current Liabilities

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10 Nov 2010
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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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Two key features: it is likely to be paid within one year or operating cycle, and it will be paid from existing current assets or through the creation of other current liabilities. Liabilities are described as definitely determinable, estimable, or contingent. This is one with a known amount, payee, and due date. This means that the company has been pre-authorized by the bank to borrow money, up to a preset limit, when it is needed. Collateral is usually required by the bank as protection in the event of a default on the loan. A number of companies show a negative, or overdrawn, cash balance at year end as a result of using their line of credit. This amount is known as bank indebtedness, bank overdraft, or bank advances. Notes payable are obligations in the form of written promissory notes. Interest is due at maturity; however, interest accrues over the life of the note and must be recorded periodically.

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