Accounting 101-Chapter 9

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Author:
davecowman
ID:
305413
Filename:
Accounting 101-Chapter 9
Updated:
2015-07-19 20:56:44
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Chapter9
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Description:
Current Liabilities, Contingencies, and the Time Value of Money
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  1. Current Liabilities
    Accounts that will be satisfied within one year or the current operating cycle
  2. Accounts Payable
    Amounts owed for inventory,goods, or services acquired in the normal course of business.
  3. Notes payable
    Amounts owed that are represented by a formal contract.
  4. Discount on notes payable
    A contra liability that represents interest deducted from a loan in advance.
  5. Current Portion of long-term debt
    The portion of a long-term liability that will be paid within one year.

    This account should appear when a firm has a long-term liability and must make periodic payments.
  6. Accrued liability
    A liability that has been incurred but has not yet been paid.
  7. Contingent liability
    An existing condition for which the outcome is not known but depends on some future event.

    Should be accrued and presented on the balance sheet if it is probable and if the amount can be reasonably estimated.

    That are recorded:Product Warranties,Guarantees, Premiums or Coupons.
  8. Estimated liability
    A contingent liability that is accrued and reflected on the balance sheet.
  9. Contingent Liabilities that are disclosed
    Must be disclosed in the financial statement notes but not reported on the balance sheet if the contingent liability is at least reasonably possible. (Lawsuits)
  10. Contingent asset
    An existing condition for which the outcome is not known but by which the company stands to gain.  Are not reported until the gain actually occurs.
  11. Time value of money
    An immediate amount should be preferred over an amount in the future.
  12. Simple interest
    Interest is calculated on the principal amount only.

    I = P X R X T(in years)
  13. Compound interest
    Interest calculated on the principal plus previous amounts of interest.
  14. Future value of a single amount
    Is calculated if we want to calculate how much a known amount at the present will accumulate in the future, given the rate of interest it will earn, and the number of periods over which it will earn that interest.

    • FV = p(1+i)n
    • FV = Future value to be calculated
    • p = Present value or principal amount
    • i = Interest rate
    • n = Number of periods of compounding
  15. Present value of a single amount
    • It represents the value today of a single amount to be received or paid at a time in the future earning interest at a given rate.
    • PV = Future Value (1+i)-n
    • Future value = Amount to be received in the future

    • i = Interest rate
    • n = Number of periods of compounding
  16. Annuity
    A series of payments of equal amounts.
  17. Future value of an annuity
    The amount accumulated in the future when a series of payments is invested and accrues interest.

    FV=Principal(Table factor)
  18. Present value of an annuity
    The amount at a present time that is equivalent to a series of payments and interest in the future
  19. Solving for interest rates
    Table factor=PV/Annual Payment

    • You need to use Table 9-4 to find the interest rate.  Look for % in correspondence with table factor.
  20. Solving for Number of Years
    Table factor = FV/payment amount

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