Week 9 - Liabilities Flashcards
(10 cards)
Provision
. is a present obligation that is likely to occur and can be reliably estimated
. recorded in a company’s financial statements
Contingent Liabilities
. is a potential future obligation that is less likely to occur
.NOT recorded in a company’s financial statements
Warranties expense – provision, adjusting entry to cover future warranties
Warranty expense DR
Provision for warranties CR
Warranty cost is incurred as customer has claimed to use the warranty - journal entry
Provisions for warranty DR
Cash at bank CR
Trade Bills payables
can arise from transactions in the normal course of business (e.g. the conversion of accounts payable to bills payable).
Bill exchange - trade bill, journal entry
- Recording exchange
Accounts Payable DR
Unexpired Interest DR
Bills Payable CR
- Date of maturity
Bills Payable Dr
Cash at bank CR
(payment of bill)
Interest Expense DR
Unexpired interest CR
(Interest expense on bill )
Commercial bills/Accommodation bills
.is to obtain short‐term finance
.referred to as finance bills or bank bills
. These bills are bought and sold on a bills market, which is similar to a stock exchange.
Commercial bills/Accommodation bills - journal entry
Accounts Payable DR
Unexpired Interest DR
Bills Payable CR
Adjusting for unexpired interest expense - allocate interest expense at the end of period if issued in one period but matures in another
- Accruement at end of period
Interest expense DR
Unexpired interest CR - Actual payment of bill
Bills Payable Dr
Cash at bank CR
(Payment of Bill to bank)
Interest Expense DR
Unexpired interest CR
(Interest expense on bill)
When and why do we have to adjust for unexpired interest expense?
When a bill payable is issued in one accounting period and matures in another, an adjusting entry must be made at the end of the first period to allocate interest expense properly.
