ACC 210 Lecture Notes - Lecture 8: Cash Flow, Savings Account, Working Capital
Chapter 8 Notes
• Current vs Long-term liabilities
o Current
▪ Payable within one year of an operating cycle
o Long-Term
▪ Payable after more than one year of an operating cycle
o Operating cycle
▪ Period of time it takes to invest cash in inventory, sell it
and collect the proceeds in order to start the cycle again
• Notes payable
o Note signed by a firm promising to repay the amount borrowed
plus interest
o Interest on notes is calculated as
▪ Interest = Face Value x annual interest rate x fraction of
the year
• Lines of credit
o An agreement that permits a company to borrow up to a
prearranged limit without having to follow formal loan
procedures and prepare paperwork
▪ Notes payable is recorded each time the company borrows
money under the line of credit
• Commercial Paper
o If a company borrows from another company rather than from a
bank
o Recording same as above
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o sold with maturities normally ranging from 30 to 270 days
o interest rate on commercial paper is usually lower than on a
bank loan
o commercial paper has thus become an increasingly popular way
for large companies to raise funds.
• Employee Payroll Costs
o Federal and state income taxes withheld
o FICA Taxes
▪ 7.65%
▪ Collectively, social security and medicare taxes
o Employees may opt to have additional amounts withheld from
their paychecks for union dues, retirement acct contributions,
insurance, parking, etc.
o Employer withholds the amounts deducted and pays them to
the appropriate organizations
• EmployEr Payroll costs
o Salaries earned by employees
o Additional FICA tax on behalf of the employee
o Employers also pay federal and state unemployment taxes on
behalf of its employees
▪ Federal unemployment tax act and the state
unemployment tax act
o Additional employee benefits paid for by the employer are
referred to as fringe benefits
▪ Ofte pay all or part of eployees’ isurae preius
and make contributions to retirement or savings plans
o Recording employer-provided fringe benefits
▪ Debit salaries expense (fringe benefits)
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