Current liabilities and contingencies ppt

current liabilities management ppt and current and noncurrent liabilities list
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Dr.DouglasPatton,United States,Teacher
Published Date:26-07-2017
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CHAPTER 11 CURRENT LIABILITIES www.ThesisScientist.comACCOUNTING FOR CURRENT LIABILITIES A current liability is a debt that can reasonably be expected to be paid 1. from existing current assets or in the creation of other current liabilities and 2. within one year or the operating cycle, whichever is longer. www.ThesisScientist.comACCOUNTING FOR CURRENT LIABILITIES  Types of liabilities 1) Definitely determinable 2) Estimated 3) Contingent www.ThesisScientist.comACCOUNTING FOR CURRENT LIABILITIES Definitely determinable current liabilities include: 1. Operating line of credit 2. Accounts and notes payable 3. Sales tax payable 4. Payroll and employee benefits 5. Unearned revenues 6. Current maturities of long-term debt www.ThesisScientist.comOPERATING LINE OF CREDIT • A pre-authorized demand loan, allowing the company to write cheques up to a preset limit when needed. • Disclosed by footnote and by reporting any resulting bank overdraft as a current liability. www.ThesisScientist.comNOTES PAYABLE • Notes Payable are obligations in the form of written promissory notes that usually require the borrower to pay interest. • Notes payable may be used instead of accounts payable because it supplies documentation of the obligation in case legal remedies are needed to collect the debt. • Notes due for payment within one year of the balance sheet date are usually classified as current liabilities. www.ThesisScientist.comSALES TAXES PAYABLE • Sales tax is expressed as a stated percentage of the sales price of goods sold to customers by a retailer. • Sales tax includes the goods and service tax (GST), provincial sales tax (PST) or harmonized sales taxes (GST and PST combined). • The retailer (or selling company) collects the tax from the customer when the sale occurs, and periodically (usually monthly) remits the collections to the government. www.ThesisScientist.comPAYROLL AND EMPLOYEE BENEFITS • Salaries or wages payable represent the amounts owed to employees for a pay period. • Payroll withholdings include federal and provincial income taxes, Canada Pension Plan (CPP) contributions, and employment insurance (EI) premiums. • Employees may also voluntarily authorize withholdings for charity, retirement, medical, or other purposes. • Payroll withholdings are remitted to governmental taxing authorities. www.ThesisScientist.comUNEARNED REVENUES • Unearned Revenues (advances from customers) occur when a company receives cash before a service is rendered. • Examples are when an airline sells a ticket for future flights or when a lawyer receives legal fees before work is done. www.ThesisScientist.comCURRENT MATURITIES OF LONG-TERM DEBT • Another item classified as a current liability is current maturities of long-term debt. • Current maturities of long-term debt are often identified on the balance sheet as long-term debt due within one year. www.ThesisScientist.comESTIMATED LIABILTIES • Obligation that exists but for which the amount and timing is uncertain. • However, the company can reasonably estimate the liability. • Examples include property taxes and warranty liabilities. www.ThesisScientist.comPROPERTY TAXES • Property taxes are accrued monthly based on the prior year’s tax bill. • When the property tax bill for the current year is received, the company will adjust its monthly expense for the remainder of the year. www.ThesisScientist.comPRODUCT WARRANTIES • Warranty contracts may lead to future costs for replacement or repair of defective units. • Using prior experience with the product, the company estimates what the cost of servicing the warranty will be. • Estimated warranty costs are accrued with a debit to warranty expense and a credit to estimated warranty liability. www.ThesisScientist.comCONTINGENT LIABILITIES • Contingent liabilities exist when there is uncertainty about the outcome. • Contingencies are accrued by a debit to an expense account and a credit to a liability account if both of the following conditions are met: 1. The contingency is likely, and 2. The amount of the contingency can be reasonably estimated. www.ThesisScientist.comFINANCIAL STATEMENT PRESENTATION • Each major type of current liability is listed separately. • Often list bank loans, notes payable, and accounts payable first, then other liabilities. COMINCO LTD. Current liabilities (Millions) Bank loans and notes payable 5 Accounts payable and accrued liabilities 230 Income and resource taxes 36 Long-term debt due within one year 30 301 www.ThesisScientist.comAPPENDIX 11A www.ThesisScientist.comINTERNAL CONTROLS FOR PAYROLL • The objectives of internal accounting control concerning payroll are 1. to safeguard company assets from unauthorized payrolls and 2. to assure the accuracy and reliability of the accounting records pertaining to payrolls. • Payroll activities include: 1. hiring employees 2. timekeeping 3. preparing the payroll 4. paying the payroll 4 Functions • These functions should be assigned to of Payroll different departments or individuals. www.ThesisScientist.comHIRING EMPLOYEES The human resources department is responsible for: 1. Posting job openings 2. Screening and interviewing applicants 3. Hiring of employees 4. Authorizing changes in pay rates during employment 5. Terminations of employment www.ThesisScientist.comTIMEKEEPING • Hourly employees are usually required to record time worked by “punching” a time clock – the time of arrival and departure are automatically recorded by the employee when he/she inserts a time card into the clock. • The employee’s supervisor must: 1. approve the hours shown by signing the time card at the end of the pay period 2. authorize any overtime hours for an employee. www.ThesisScientist.comPREPARING THE PAYROLL The payroll department prepares the payroll on the basis of two sources of input: 1. human resource department authorizations, and 2. approved time cards.

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