What are liabilities?
Present obligations to transfer economic resources as a result of past transactions, classified as current and non current.
What is the definition of current liabilities?
Expected to be paid or settled within one year.
What are the types of current liabilities?
Bank indebtedness from operating lines of credit, accounts payable & accrued liabilities, Refund liabilities, deferred revenue, payroll, notes payable, current portion of bank loans and mortgages.
What are different types of sales taxes?
Federal goods and services tax (GST), Provincial sales tax (PST or QST), Combines into one harmonized sales tax (HST) in some provinces.
What are some things to remember about sales tax payable?
May or may not be included in sales price, to calculate portion divide cash received by 100% plus sales tax percentage, Must be remitted periodically to respective governments.
What is salary?
Money owed to employees.
What are payroll deductions?
Money required to be withheld from employees’ gross pay.
What is the employees gross pay less the payroll deductions knows as?
Net pay.
What are some mandatory payroll deductions?
Federal and provincial income taxes, Canada pension plan (CPP), Employment insurance (EI).
What are some voluntary payroll deductions?
Benefits such as health and pension, Union dues, charitable donations.
What are employer payroll liabilities?
Employer’s share of CPP and EI, Workers’ comp, Employee benefits ( compensated absences, employer-sponsored health plans and pensions).
How do we journal employee benefits?
Employee benefit expense.
What are provisions?
Events without certain outcomes (timing, amount).
What are contingent liabilities?
Possible obligations that are dependent upon some future event. Not recorded, only notes to financial statements if one of these conditions is present (Outcome in not probable, Outcome is not determinable, Estimate of outcome cannot be made).
What are interest bearing liabilities?
Indebtedness to a creditor requiring more than a short period of time to pay amount owed. In addition to paying principal, interest also payable. Interest may be paid on single due date when principal is due, or on various dates before principal is due.
Types of interest-bearing Liabilities
Operating lines of credit have not set date for repayment of principal, notes with a single principal payment on maturity, loans that require instalment payments of principal and interest on scheduled dates.
What is an operating line of credit?
Pre-arranged agreement between company and lender, burrow up to a limit whenever. Company repays whatever they want whenever. Interest is charged on variable interest rate. When used = bank indebtedness = current liability.
What are liabilities with principal due at maturity?
Promise to pay specified amount, usually on fixed future date. Formal written promise, often used instead of accounts payable. Bears interest at fixed interest rate.
What are liabilities with instalment payments?
Series of periodic payment, called instalments. Consist of Interest on unpaid balance of loan at beginning of period, repayment of portion of loan principal. Specified repayment schedule must be followed.
What is an equal payments schedule?
Loan is repayable in equal periodic payments. Monthly interest expense is calculated by multiplying outstanding principal balance by interest rate.
What are the 5 parts of an instalment payment schedule?
Date, Cash Payment (A), Interest Expense (B), Reduction of principal (A-B), Principal Balance (D-C).
What part of a loan requiring instalment payments is a current liability?
Principal portion of loan that will be repaid in the next year.
What are the advantages and disadvantages of debt financing?
Easier to obtain than equity financing, borrowing may allow companies to grow faster, Interest expense is tax deductible, Principal and interest must be paid back on certain dates, when incurring debt companies must earn rate of return higher than interest rate on that debt, often security must be pledged for debt financing.
How are liabilities presented?
Current first, normally listen in due date order. Non-current liabilities presented immediately following current, generally measured and reported at amount expected to be paid when due.
