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Week of April 11-15

by: Callisa Ruschmeyer

Week of April 11-15 ACCT 2110 - 002

Callisa Ruschmeyer
GPA 4.0

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About this Document

All of Chapter 8 notes Current Liabilities Material on Test 4 (which is Wednesday, April 13)
Principles of Financial Accounting
Elizabeth G Miller
Class Notes
Financial Accounting; Miller; Auburn University; Chapter 8; Liabilities; Test 4
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This 4 page Class Notes was uploaded by Callisa Ruschmeyer on Monday April 11, 2016. The Class Notes belongs to ACCT 2110 - 002 at Auburn University taught by Elizabeth G Miller in Fall 2015. Since its upload, it has received 25 views. For similar materials see Principles of Financial Accounting in Accounting at Auburn University.


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Date Created: 04/11/16
Chapter 8 Review Current Liabilities  Liabilities- obligations that require the company to pay cash or another current asset or provide goods or services within the longer of one operating cycle  Most companies consider one operating cycle to be one year  Examples o Accounts payable- no interested required; usually due within 30 to 60 days o Accrued liabilities- wages payable, interest payable, taxes payable o Notes payable- require interest to be paid at maturity; more legally binding than an account payable o Unearned revenue- money has been exchanged, but goods or services have yet to be provided Other Payables  These include various forms of taxes o Sales tax, usage tax, excise tax for various states, local and federal taxes  These taxes add to the selling price of things, but the additional money is not added to company's revenue Withholding and Payroll Taxes  Withholding and payroll taxes are liabilities until they are paid to the taxing authority  Business are required to withhold taxes form employees' earnings and to pay taxes based on wages and salaries paid to employees  Two sources for these taxes are 1. Employees- pay certain taxes that are withheld from their paycheck  Difference between gross pay and net pay 2. The business itself-pay certain taxes based on employee payrolls  Like matching contributions of Social Security or Medicare Contingent Liabilities  When liabilities depend on a future event  But it is not recognized in the accounts unless o the even on which it is contingent is probable o and a reasonable estimate of the loss can be made  Examples- lawsuits and warranties Analyzing Current Liabilities  Ratios used for companies to analyze their ability to meet its current obligations (liquidity)  You want the current ratio to be higher than 1- basically, you want assets to be more than liabilities o But the assets must be liquid- like cash, short term investments or account receivables- if they are all inventory, it wouldn’t do the company any good  Current ration = current assets / current liabilities  Quick ratio = (cash + marketable securities + accounts receivable) / current liabilities  Cash ratio = (cash + marketable securities) / current liabilities  Operating Cash Flow Ratio = cash flows from operating activities / current liabilities o Only good for mature companies o New companies have many more expenses than established companies- as well as having a lower revenue


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