Liabilities and Payroll

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

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

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.

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 10,000N/P 10,000

P x R x T = I ( 10,000 x .06 x 30/360) = 50

Interest Expense 50Interest Payable 50

N/P 10,000Int Exp 50Int Pay 50

Cash 10,100

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

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) 19,250Int Exp 750

N/P 20,000

Pay off of N/P N/P 20,000 Cash 20,000

Review Sheet Current Liabilities

Buzzbee Review sheet

And then payroll sheet