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Chapter 11 Current Liabilities and Payroll Notes

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Accounting Chapter 11: Long-term liabilities: Debts due beyond one year ➢ Often paid back in periodic payments (installments) ○ Installments that are due within the coming year are current liabilities ○ Installments due after the coming year are long-term liabilities Current liabilities: Debts that will be paid out of current assets and are due within one year Note: Legal lending document that says the borrower promises to repay to the lender a certain amount of money in a certain time frame ➢ Notes may be issued to purchase merchandise or other assets, or issued to creditors to satisfy an account payable created earlier Issue note (debtor’s books): Accounts Payable XXX Notes Payable XXX Issue note (creditor’s books): Notes Receivable XXX Accounts Receivable XXX Payment of the note (debtor’s books): Notes Payable XXX Interest Expense XXX Cash XXX Payment of the note (creditor’s books): Cash XXX Interest Revenue XXX Notes Receivable XXX *A company may also borrow from a bank by issuing a note (issue note to the bank) Cash XXX Notes Payable XXX Payment of the note: Notes Payable XXX Interest Expense XXX Cash XXX *In some cases a discounted note may be issued rather than an interest-bearing note ➢ The interest rate on the note is called the discount rate ➢ The amount of interest on the note, called the discount, is computed by multiplying the discount rate times the face amount of the note ➢ The debtor (borrower) receives the face amount of the note less ...
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