Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by:...
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![Page 1: Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.](https://reader036.fdocuments.us/reader036/viewer/2022062600/5a4d1b947f8b9ab0599c3167/html5/thumbnails/1.jpg)
Accounting for Liabilities
Georgia CTAE Resource NetworkGeorgia CTAE Resource NetworkInstructional Resources OfficeInstructional Resources Office
Written by: Dr. Marilynn K. SkinnerWritten by: Dr. Marilynn K. SkinnerMay 2009May 2009
![Page 2: Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.](https://reader036.fdocuments.us/reader036/viewer/2022062600/5a4d1b947f8b9ab0599c3167/html5/thumbnails/2.jpg)
Current Liabilities
Debts of a company that are paid with current assets.
Debt that is paid off within a year
![Page 3: Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.](https://reader036.fdocuments.us/reader036/viewer/2022062600/5a4d1b947f8b9ab0599c3167/html5/thumbnails/3.jpg)
Notes Payable
Debts of a company that result in the company signing a negotiable loan instrument (note)
Notes may be:Interest Bearing – Interest accrues as the note matures.
Non-Interest Bearing – the interest is included in the face value
(principal) of the note
![Page 4: Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.](https://reader036.fdocuments.us/reader036/viewer/2022062600/5a4d1b947f8b9ab0599c3167/html5/thumbnails/4.jpg)
Interest Bearing Note
Example: On August 20 Spectrum Electronics purchased $1,000 in merchandise on account from Jetto Enterprises, the terms were n/30. On September 19, Spectrum could not pay the amount and asked Jetto to accept a note payable on the account
Date Description Debit Credit
8/20 Accts. Pay/Jetto 1,000
Notes Payable 1,000
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Paying an Interest Bearing Note Payable
On December 18 Spectrum paid the principal plus interest back to Jetto
• *Principal X Interest Rate X TIME = Interest 1,000.00 X .10 X 90/365 = 24.66
Date Description Debit Credit
12/18 Note Payable 1,000.00
Interest Expense* 24.66
Cash 1024.66
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Adjusting for Accrued Interest
Example: On December 22 Spectrum issued a note payable to Jetto for $3000. The terms of the note were 30 days at 11%. Complete the entry for accrued interest at December 31.
• Principal X Interest Rate X Time = Interest 3000 X .11 X 9/365 = 8.14
Date Description Debit Credit
12/31 Interest Expense 8.14
Interest Payable 8.14
![Page 7: Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.](https://reader036.fdocuments.us/reader036/viewer/2022062600/5a4d1b947f8b9ab0599c3167/html5/thumbnails/7.jpg)
Adjusting for Accrued Interest
Example: On December 22 Spectrum issued a note payable to Jetto for $3000. The terms of the note were 30 days at 11%. Complete the entry for the payment of the note on January 21.
• Principal X Interest Rate X Time = Interest 3000 X .11 X 21/365 = 18.98
Date Description Debit Credit1/21 Note Payable 3000.00
Interest Payable 8.14Interest Expense 18.98 Cash in Bank 3027.12
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Noninterest Bearing Note Payable
Also called a discounted note payable
Bank requires borrower to pay interest at time loan is issued
Borrower receives less than face value of note at time of the loan.
![Page 9: Accounting for Liabilities Georgia CTAE Resource Network Instructional Resources Office Written by: Dr. Marilynn K. Skinner May 2009.](https://reader036.fdocuments.us/reader036/viewer/2022062600/5a4d1b947f8b9ab0599c3167/html5/thumbnails/9.jpg)
Noninterest Bearing Note Payable Example
On February 15 Spectrum issued a $4,200, 60-day noninterest bearing note, discounted at 12%. What are the proceeds from the note?
Face value X Discount Rate X Time = Bank Discount4,200.00 X .12 X 60/365 = 82.85
Face Value - Bank Discount = Proceeds4,200.00 - 82.85 = 4,117.15
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Recording a Noninterest Bearing Note
On February 15 Spectrum issued a $4,200, 60-day noninterest bearing note, discounted at 12%. What is the entry to record the note?
Date Description Debit Credit2/15 Cash in Bank 4117.15
Discount on Notes Payable 82.58 Notes Payable 4200.00
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Recording Payment of a Noninterest Bearing Note
On April 16 Spectrum paid the $4,200, 60-day noninterest bearing note, discounted at 12%. What is the entry to record the note?
Date Description Debit Credit4/16 Interest Expense 82.85
Notes Payable 4200.00 Discount on note payable 82.85 Cash in Bank 4200.00
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Adjusting for Accrued Interest for a Noninterest Bearing
NoteOn December 16 Spectrum issued a $2,500, 45-day
noninterest bearing note, discounted at 12%. What is the entry to record the accrual of interest on December 31?
Principal X Interest Rate X Time = Interest2,500 X .12 X 15/365 = 12.33
Date Description Debit Credit12/31 Interest Expense 12.33
Discount on Notes Payable 12.33
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Adjusting for Accrued Interest for a Noninterest Bearing
NoteOn December 16 Spectrum issued a $2,500, 45-day
noninterest bearing note, discounted at 12%. What is the entry to record the payment of the note on January 30?
Date Description Debit Credit1/30 Interest Expense 24.66
Notes Payable 2500.00 Discount on Notes Payable 24.66 Cash in Bank 2500.00