CHAPTER 13 Flashcards
Terms and important equations or statements from chapter 13
liabilities occur when…
- businesses buy merchandise or supplies on credit
- businesses are borrowing cash to finance their activities
accounts payable
- payable on open account
- short duration
- non-interest-bearing
trade notes payable
- long duration
- bear interest
short term notes payable
- temp. financing from bank
- lower interest rates than long-term debt
- companies have flexibility while selecting financial alternatives
lines of credit
agreement to provide short-term financing, with amounts withdrawn by the borrower when needed
committed credit line
formal agreements with a committed fee to banks to keep credit line amount available to the company
noncommitted credit lines
informal agreements that allow borrowing up to a prearranged limit without formal loan procedures
INTEREST =
FACE AMOUNT X ANNUAL RATE X TIME OF MATURITY
secured loans
loan borrowed by pledging a specified asset of the borrower as collateral or security
pledging accounts receivable
when accounts receivable serve as collateral
factoring receivable
when the receivables actually are sold outright to a finance company
accrued liabilities
expenses already accrued but not yet paid
CURRENT RATIO =
CURRENT ASSETS / CURRENT LIABILITIES
loss contingency
existing, uncertain situation involving potential loss depending on whether some future event occurs
- product warranty
ACID TEST (QUICK RATIO) =
QUICK ASSETS / CURRENT LIABILITIES
