1. Financial Accounting Chapter 9-10. Liabilities

2. Objectives
Short-term debts (current liabilities)
Long-term debts (e.g., bank loans and bonds)

3. Liabilities Defined and Classified
Defined as probable debts or obligations of the entity that result from past transactions, which will be paid with assets or services.
Maturity = 1 year or less
Maturity > 1 year
Current Liabilities
Noncurrent Liabilities

4. Current Liabilities Account Also Definition Name Called Trade
Obligations to pay for goods and
Accounts
Accounts
services used in the basic operating
Payable
Payable
activities of the business.
Obligations related to expenses that
Accrued
Accrued
have been incurred, but will not be
Liabilities
Expenses
paid until the subsequent period.
Notes
Obligations due supported by a formal
N/A
Payable
written contract.
Obligations arising when cash is
Deferred
Unearned
received prior to the related revenue
Revenues
Revenues
being earned.

5. Long-term Liabilities
Long term liabilities include all obligations that are not classified as current liabilities.
Long-term notes payable and bonds
Raising debt from private organization is called a note payable
Publicly traded debt is called bonds
Lease liabilities
Operating leases vs capital leases

6. Bond Bond is a kind of debt that companies issue.
People (investors) can buy bond in bond market as they can buy stocks in stock market.
The bond holder receives a specific rate of interest shown in the bond for each period.
When the bond becomes mature, the bond issuer (company) pays the principal to bond holder.

7. Present Value Concepts
$1,000 invested today at 10%.
In 5 years it will be worth $1,
In 25 years it will be worth $10,834.71!
Money can grow over time, because it can earn interest.

8. Present Value of a Single Amount
The present value of a single amount is the worth to you today of receiving that amount some time in the future.
Future Value
Present Value
Interest compounding periods
Today
Future

9. Present Values of an Annuity
What is the value today of a series of payments to be received or paid out in the future?
Payment 1
Payment 2
Payment 3
Present Value
Interest compounding periods
Today

10. Accounting Applications of Present Values
On January 1, 2006, Starbucks bought some new delivery trucks. The company signed a note agreeing to pay $200,000 on December 31, The market interest rate for this note is 12%.
Let’s prepare the journal entry to record the purchase.