Deck #11 (F5) Flashcards
What is the difference in the gross and net method of trade AP?
Net - recorded net of the discount initially
Gross - no discount
JE [Entity purchases $5k of inventory with 2/10 (net 45 days). Entity records under gross method and pays within discount period]
- Initially recording of the payable
- Once actually paid, 30 days later
- DR: Inventory $5k
CR: Accounts Payable $5k - DR: AP. $5k
CR: Cash $4.9k
CR: Discount $100
When can a ST obligation be excluded from current obligations and put into non current debt?
if entity plans to refinance (before issuance)
What are the two methods of accruing property taxes?
- property taxes payable may be accrued prior to the receipt of the invoice and matched in the year for which the invoice pertains
- PT may also be recorded as a payable upon the receipt of the invoice and expensed the year it is received (not invoice year)
JE (company sells $10k and collects 7% sales tax
DR: Cash $10,700
CR: Sales Revenue $10,000
CR: Sales Tax Payable $700
How are payroll deductions treated?
NOT expensed. It is credited to a payable account.
How are bonuses treated?
recorded to salaries and wages expense
3 criteria for liability recognition:
- obligating event occurred
- event results in present obligation
- entity has little or no discretion to avoid transfer of assets
how is a liability recorded?
fair value (usually discounted net present value)
what is an ARO? when does it qualify for recognition?
ARP - a legal obligation associated with the retirement of a tangible long lived asset that results from the acquisition or development of a long lived asset
When it meets the 3 liability recognition criteria
what is a contingency?
existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss that will ultimately be deterred when a future event occurs or fails to occur
What is important to remember about gain contingencies?
DO NOT RECORD WITH JE
Recognition and measurement of loss contingency
- probable
- reasonably possible
- remote
- record
- disclose
- ignore (general rule)
No disclosure is necessary for a remote loss contingency. However, disclosure should be made for guarantees such as:
DOG
debts, obligations, guarantees
what is the time value of money?
the use of money over a period of time
