Liabilites

1. Liabilities and Payroll

2. Current Liabilities-
(Accounts/ Payable, short term N/P,
payroll liabilities)
Must be paid within 1 year or within
operation cycle whichever is longer
Will be paid with current assets

3. Accounts Payable
 A liability created by a purchase made on
credit.
 2 Categories
Trade A/P – Short-term obligations to
suppliers
Other A/P – Liability for goods and
services

4. Notes Payable
 (You owe the money) written promises
(promissory notes) to repay a debt.
Issued whenever bank loans are
obtained, & purchase of real estate or
equipment.
Interest can be included in the face of
the note or state separate.

5. Example: Interest Bearing
 Borrow $10,000 from a bank for 60 days
at 6% interest on 12/1
 Accrual of interest
 On 1/30 when note is due and paid the
entry is:
Cash 10,000
N/P 10,000
P x R x T = I
( 10,000 x .06 x 30/360) = 50
Interest Expense 50
Interest Payable 50
N/P 10,000
Int Exp 50
Int Pay 50
Cash 10,100

6. Discounting Notes Payable
 Borrower will issue a discounted N/P
rather than an interest bearing note
Creditor sets the interest rate
(discount)
Rate used is called discount rate
Borrower is given the remainder =
proceeds

7. Example Discount
 Company issues a $20,000, 90 day note in
exchange for inventory they discount it at
15%
Interest = P x R x T
( 20,000 X .15 x 90/360) = $750 disco
Issue Note:
Mer Inv (proceeds) 19,250
Int Exp 750
N/P 20,000
Pay off of N/P
N/P 20,000
Cash 20,000

8. Review Sheet Current Liabilities
 Buzzbee Review sheet
 And then payroll sheet