Week of April 11-15
Week of April 11-15 ACCT 2110 - 002
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ACCT 2110 - 002
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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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