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What is a liability?
Probable future Sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events
What is a current liability?
obligations whose liquidation is expected to require current assets
Typical current liabilities
current maturities of long-term debt
short-term obligations expected to be refinanced
customer advances and deposits
sales tax payable
income taxes payable
2 ways of recording
Balances owed to others for goods, supplies or services
Can be recorded using gross or net method
Accts Payable XXX
Accts payable XXX
Sales discounts XXX
(recorded less the sales discount)
if paid past the discount date:
Sales Discounts forfeited XXX
The amount of the note and the amount of cash received are the same
Interest accrues over time
Zero-interest bearing note
The amount of the note and cash are different. The difference is recorded as a discount or premium on notes payable and is amortized over the life of the note and charged to interest expense.