ACCT-1001EL Study Guide - Final Guide: Revolving Credit, Current Liability, Working Capital
20 Jun 2018
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Chapter 9 - Current Liabilities
Liability Characteristics
1. It is a present obligation of the entity
2. The company expects to settle it through an outflow of resources that represent
future economic benefits
3. The obligation results from an event that has already happened
Current Liabilities
Common current liabilities die to lenders include:
-Bank indebtedness (Line of Credit)
-Revolving Credit Facilities — similar to overdraft
-If company has made use of its bank indebtedness it is presented as this on the
statement of financial position
-This is normally presented as the first current liability because it will be repaid with
the company’s subsequent cash deposits.
-Standby Fees are usually charged when businesses use these revolving credit
facilities, to the unused portion of the credit facility. (Cost to the company for having
the leftover amount sitting in the bank).
-Short-term loans
-Companies also address cash shortfalls by arranging working capital loans.
Working capital is the amount by which a company’s current assets exceed its
current liabilities. This type of short-term loan is secured by the companies
accounts receivable, inventory or both.
-Collateral — assets that have been pledged to as security for debts.
-Unsecured — no specific assets have been pledged as collateral to guarantee
repayment. Relying on general creditworthiness of the company.
-Current portion of long-term debt
-Blended Instalment Payments — Payments that require both principal and
interest components each month, quarter or year.
find more resources at oneclass.com
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Document Summary
It is a present obligation of the entity: the company expects to settle it through an out ow of resources that represent future economic bene ts, the obligation results from an event that has already happened. Revolving credit facilities similar to overdraft. If company has made use of its bank indebtedness it is presented as this on the statement of nancial position. This is normally presented as the rst current liability because it will be repaid with the company"s subsequent cash deposits. Standby fees are usually charged when businesses use these revolving credit facilities, to the unused portion of the credit facility. (cost to the company for having the leftover amount sitting in the bank). Companies also address cash shortfalls by arranging working capital loans. Working capital is the amount by which a company"s current assets exceed its current liabilities. This type of short-term loan is secured by the companies accounts receivable, inventory or both.
