Accounting 205 Exam 2
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Obligation to transfer assets or provide services in the future
It may arise in the absence of a trasnaction
- Accounts Payable
- Short-term Debt
- Current Maturities of long term debt
- Interest Payable
- Other accrued liabilities
Buy goods or services on credit (on account)
- Initial maturity date is less than one year
- Note payable - formal promise to pay a stated amount in the future
- Sometimes secured by collateral.
Date the note is due in full
Amount of the note
Rate the bank charges for the use of their money
Tangible asset that the bank lays claim to if the note is not paid in full.
Working Capital Loan
- use to continue production even when demand is slow
- look at current assets and current liabilities.
Revolving line of credit
predetermined amount of money available to borrow, the firm has flexibility in timing and amount borrowed
- Stated rate - usually prime rate
- Straight line = principal X rate X time (in years)
Short Term Loan pay off
- Payment made based on the schedule in the actual agreement
- This payment includes principal and interest
- 10000 X 8% = 800/year. therefore $67 per month.
Pay note off with cash on maturity date
Current maturities of Long-term debt
- some long term notes payable or bonds payable must be paid in installment
- Current maturities on long-term debt is the amount of principal that is payable within one year.
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