Upload
agnes-bryant
View
223
Download
0
Tags:
Embed Size (px)
Citation preview
©CourseCollege.com
1
11 Payables
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Examples are
Accounts and Notes Payable
Learning Objectives1. Describe a Voucher system for
processing payables
2. Compute and record payables arising from payroll
3. Explain the recording and payment of sales and property taxes payable
4. Describe accounting for short term notes payable
5. Analysis: Calculate and explain AP payment period
©CourseCollege.com
2
Objective 11.1: Describe a Voucher system for processing payables
O11.1
Voucher system = control of payment process
•A process to properly authorize payables
•No checks can be issued without a voucher
•Reduces fraud and theft
•Segregates authorization, recording and custody
Voucher system = control of payment process
•A process to properly authorize payables
•No checks can be issued without a voucher
•Reduces fraud and theft
•Segregates authorization, recording and custody
©CourseCollege.com
3
Purchase Requisition
Purchase Order
Receiving Report
Footwear manager requests 125 pair Western boots
Purchasing manager approves and sends PO to vendor who
ships product
Milne O. receives product. Receiving report is prepared.
Vendor, Win the West, sends invoice.
Firm completes voucher process, obtains approvals,
attaches process documents, schedules and completes
payment.
Vendor’s Invoice
VoucherVoucher
Milne Outfitters
Documents in a Voucher system
O11.1
©CourseCollege.com
4VOUCHER#: 61236
InvoicePayee: Cust. # L2467Inv. Date 7/14/2007 Inv. Amount 9,850.00Due date 8/14/2007 Inv. Terms 2/10 n30
Account Distribution Debit amount9,850.00
Other Acct #Other Acct #Other Acct #
Credit Accts Payable 9,850.00
Voucher SummaryAmount 9,850.00AdjustmentDiscount 197Net 9,653.00
Payment SummaryDate 7/24/2007Amount 9,653.00Check No. 2467
Approval
Sundance Kid, Auditor
Attachments:
Win The West
Merchandise InventorySupplies
Sundance Kid
Milne OutfittersChisolm, Texas
Purchase requisitionPurchase orderInvoice
Receiving report
VOUCHER#: 61236
InvoicePayee: Cust. # L2467Inv. Date 7/14/2007 Inv. Amount 9,850.00Due date 8/14/2007 Inv. Terms 2/10 n30
Account Distribution Debit amount9,850.00
Other Acct #Other Acct #Other Acct #
Credit Accts Payable 9,850.00
Voucher SummaryAmount 9,850.00AdjustmentDiscount 197Net 9,653.00
Payment SummaryDate 7/24/2007Amount 9,653.00Check No. 2467
Approval
Sundance Kid, Auditor
Attachments:
Win The West
Merchandise InventorySupplies
Sundance Kid
Milne OutfittersChisolm, Texas
Purchase requisitionPurchase orderInvoice
Receiving report
Sample Voucher
O11.1
The Voucher controls the payment process by requiring specific
procedures and approvals prior to the issuance of all
checks
©CourseCollege.com
5VOUCHER#: 61236
InvoicePayee: Cust. # L2467Inv. Date 7/14/2007 Inv. Amount 9,850.00Due date 8/14/2007 Inv. Terms 2/10 n30
Account Distribution Debit amount9,850.00
Other Acct #Other Acct #Other Acct #
Credit Accts Payable 9,850.00
Voucher SummaryAmount 9,850.00AdjustmentDiscount 197Net 9,653.00
Payment SummaryDate 7/24/2007Amount 9,653.00Check No. 2467
Approval
Sundance Kid, Auditor
Attachments:
Win The West
Merchandise InventorySupplies
Sundance Kid
Milne OutfittersChisolm, Texas
Purchase requisitionPurchase orderInvoice
Receiving report
VOUCHER#: 61236
InvoicePayee: Cust. # L2467Inv. Date 7/14/2007 Inv. Amount 9,850.00Due date 8/14/2007 Inv. Terms 2/10 n30
Account Distribution Debit amount9,850.00
Other Acct #Other Acct #Other Acct #
Credit Accts Payable 9,850.00
Voucher SummaryAmount 9,850.00AdjustmentDiscount 197Net 9,653.00
Payment SummaryDate 7/24/2007Amount 9,653.00Check No. 2467
Approval
Sundance Kid, Auditor
Attachments:
Win The West
Merchandise InventorySupplies
Sundance Kid
Milne OutfittersChisolm, Texas
Purchase requisitionPurchase orderInvoice
Receiving report
Sample Voucher
.Invoice items were requested properly.An approved vendor was used.Items were actually received.The invoice prices and terms were as agreed to from the original purchase order.All mathematical extensions are correct
Approval of the voucher
by the auditor implies:
O11.1
©CourseCollege.com
6
Purchase Requisition
Purchase Order
Receiving Report
Vendor’s Invoice
VoucherVoucher
Milne Outfitters
Win the West
FOOTWEAR
DEPT
PURCHASING
RECEIVING
ACCOUNTING
VENDOR
Flow of Voucher documents
O11.1
©CourseCollege.com
7
• Copies improve communication and facilitate error detection
• Copies create a trail that is difficult to manipulate
• The accounting department receives a copy of everything to recheck the entire process
• Accounting department records the transaction, therefore final approval of the voucher should be outside of the accounting department
• Copies improve communication and facilitate error detection
• Copies create a trail that is difficult to manipulate
• The accounting department receives a copy of everything to recheck the entire process
• Accounting department records the transaction, therefore final approval of the voucher should be outside of the accounting department
Use of Voucher documents
O11.1
©CourseCollege.com
8
Every payroll event will involve two categories
of expense, gross earnings and additional
employer payroll expense (taxes &
benefits). The balancing entries for
these expenses will all involve payables.
Objective 11.2: Compute and record payables arising from payroll
O11.2
©CourseCollege.com
9
Total payroll expenses include
the big wheel, gross earnings plus
the little wheel, additional employer
payroll expenses.
GROSS EARNINGS
EMPLOYER PAYROLL EXPENSE
TOTAL COST OF PAYROLL
Two categories of expense
O11.2
©CourseCollege.com
10
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Page 7
Date Description PR Debit Credit
15-Jun Wages Expense 575 480.00
Wage Payable 230 366.88
FICA (Social Security) Payable 235 36.72
FIT (Fed Inc. Tax withheld) Payable 238 53.40
Medical Insurance Payable 240 23.00
Payroll tax expense 580 216.04
FICA (Social Security) Payable 235 36.72
Federal Unemp. Tax Payable (FUTA) 245 38.40
State Unemp. Tax Payable (SUTA) 246 25.92
Medical Insurance Payable 240 115.00
GENERAL JOURNAL
Journal entries for payroll“Big Wheel”
area
&
“Little Wheel” area
That would be the amount of your “take home” paycheck.
-Look at the total cost to the employer vs take home: $480 +
$216 = $696 cost and the employee takes home $367!
O11.2
©CourseCollege.com
11Rate Cap
FIT Varies NoneSocial Sec 6.20% 76,200 Employer matchMedicare 1.45% None Employer matchMedical Ins Varies NoneFUTA 0.80% 7,000SUTA 5.40% 7,000
Employee Earnings FITSocial Security Medicare
Medical Insurance
Total Deduct
Wages Payable
Mary ToddYTD 75,700.00 18,168.00 4,693.40 1,097.65 650.00Current 2,450.00 588.00 31.00 35.53 65.00 719.53 1,730.48 Total 78,150.00 18,756.00 4,724.40 1,133.18 715.00Joe LincolnYTD 1,250.00 187.50 77.50 18.13 130.00Current 480.00 72.00 29.76 6.96 65.00 173.72 306.28 Total 1,730.00 259.50 107.26 25.09 195.00
EarningsSocial
Security Medicare FUTA SUTAMedical Insurance
Total payroll tax expense
EmployeeMary ToddYTD 75,700.00 4,693.40 1,097.65 56.00 378.00 4,620.00 10,845.05Current 2,450.00 31.00 35.53 0.00 0.00 231.00 297.53 Total 78,150.00 4,724.40 1,133.18 56.00 378.00 4,851.00 11,142.58Joe LincolnYTD 1,250.00 77.50 18.13 10.00 67.50 410.00 583.13Current 480.00 29.76 6.96 3.84 25.92 205.00 271.48 Total 1,730.00 107.26 25.09 13.84 93.42 615.00 854.61
M. Todd 2,747.53J. Lincoln 751.48
Current Payroll
Current Total = Gross earnings + Payroll tax expense
Gross Earnings
Employer Payroll Expense
FICA
FICA
Rate CapFIT Varies NoneSocial Sec 6.20% 76,200 Employer matchMedicare 1.45% None Employer matchMedical Ins Varies NoneFUTA 0.80% 7,000SUTA 5.40% 7,000
Employee Earnings FITSocial Security Medicare
Medical Insurance
Total Deduct
Wages Payable
Mary ToddYTD 75,700.00 18,168.00 4,693.40 1,097.65 650.00Current 2,450.00 588.00 31.00 35.53 65.00 719.53 1,730.48 Total 78,150.00 18,756.00 4,724.40 1,133.18 715.00Joe LincolnYTD 1,250.00 187.50 77.50 18.13 130.00Current 480.00 72.00 29.76 6.96 65.00 173.72 306.28 Total 1,730.00 259.50 107.26 25.09 195.00
EarningsSocial
Security Medicare FUTA SUTAMedical Insurance
Total payroll tax expense
EmployeeMary ToddYTD 75,700.00 4,693.40 1,097.65 56.00 378.00 4,620.00 10,845.05Current 2,450.00 31.00 35.53 0.00 0.00 231.00 297.53 Total 78,150.00 4,724.40 1,133.18 56.00 378.00 4,851.00 11,142.58Joe LincolnYTD 1,250.00 77.50 18.13 10.00 67.50 410.00 583.13Current 480.00 29.76 6.96 3.84 25.92 205.00 271.48 Total 1,730.00 107.26 25.09 13.84 93.42 615.00 854.61
M. Todd 2,747.53J. Lincoln 751.48
Current Payroll
Current Total = Gross earnings + Payroll tax expense
Gross Earnings
Employer Payroll Expense
FICA
FICA
Payroll calculation example
“Big Wheel” area
&
“Little Wheel” area
O11.2
©CourseCollege.com
12
Gross Earnings (Big Wheel)•FIT –Federal Income Tax withheld•FICA –Federal Insurance Contributions Act (Social Security) Two components Social Security and Medicare •Medical Insurance –Employee benefit of medical insurance provided by the employer. Premiums often shared between employer and employee•Wages Payable –Gross earnings minus deductions = net paycheck
Employer Payroll Tax Expense (Little Wheel)•FICA –Same as employees. The employer is required to match dollar for dollar •FUTA –Federal Unemployment Insurance paid by the employer to provide employees with jobless benefits •SUTA –State Unemployment Insurance paid by the employer to provide jobless benefits.
Gross Earnings (Big Wheel)•FIT –Federal Income Tax withheld•FICA –Federal Insurance Contributions Act (Social Security) Two components Social Security and Medicare •Medical Insurance –Employee benefit of medical insurance provided by the employer. Premiums often shared between employer and employee•Wages Payable –Gross earnings minus deductions = net paycheck
Employer Payroll Tax Expense (Little Wheel)•FICA –Same as employees. The employer is required to match dollar for dollar •FUTA –Federal Unemployment Insurance paid by the employer to provide employees with jobless benefits •SUTA –State Unemployment Insurance paid by the employer to provide jobless benefits.
O11.2
Definitions-Payroll
Total Cost of Payroll = Gross Earnings + Employer Payroll
Expense
©CourseCollege.com
13
Caps are maximum earning levels that a particular tax applies to.
For example
The Social Security tax paid by employees was 6.2% (also matched by employer) of earnings up to $76,200. After reaching that total, no additional tax is paid. For Medicare however, there is no cap and the 1.45% Medicare tax (also employer matched) would continue to apply to all earnings regardless of total.When dealing with a cap, you should ask. . .
Caps are maximum earning levels that a particular tax applies to.
For example
The Social Security tax paid by employees was 6.2% (also matched by employer) of earnings up to $76,200. After reaching that total, no additional tax is paid. For Medicare however, there is no cap and the 1.45% Medicare tax (also employer matched) would continue to apply to all earnings regardless of total.When dealing with a cap, you should ask. . .
O11.2
Payroll Caps
©CourseCollege.com
14For this payroll
calculation: Are total YTD earnings
already above the cap?
For this payroll calculation: Are total
YTD earnings already above the cap?
Yes
No
This tax no longer applies
to this employee this
year.
This tax no longer applies
to this employee this
year.
Will this payroll bring total YTD
earning over the cap?
Will this payroll bring total YTD
earning over the cap?
This tax applies to all of the
earnings for this payroll period for
this employee.
This tax applies to all of the
earnings for this payroll period for
this employee.
Subtract the previous YTD earnings from the cap. This remainder is
the portion of the current payroll that the tax applies to.
Subtract the previous YTD earnings from the cap. This remainder is
the portion of the current payroll that the tax applies to.
YesNo
Payroll Caps
O11.2
©CourseCollege.com
15
O11.3
Objective 11.3: Explain the recording and payment of sales and property
taxes payable
©CourseCollege.com
16
•Sales taxes are levied against retail sales•The “ultimate consumer”, the retail purchaser pays the tax.Sales taxes are not an expense of the business collecting them •The business is acting as an agent of the taxing authority in the collection and payment of sales tax. The business remains fully liable and must pay amounts based on total sales subject to the tax
•Sales taxes are levied against retail sales•The “ultimate consumer”, the retail purchaser pays the tax.Sales taxes are not an expense of the business collecting them •The business is acting as an agent of the taxing authority in the collection and payment of sales tax. The business remains fully liable and must pay amounts based on total sales subject to the tax
Sales Tax
O11.3
©CourseCollege.com
17
That’ll be $2.75 for a double tall latte PLUS $.22
for the governor!
OK $2.97 total cash. Just remember the $.22
sales tax isn’t an expense, just a liability
until paid. . .
Sales Tax
O11.3
©CourseCollege.com
18
Sales TaxSales tax payable is recorded as collected
with sales activitySales tax payable is recorded as collected
with sales activity
Page 9
Date Description PR Debit Credit
31-Jan Cash 100 13,500.00
Sales 400 12,500.00
Sales Tax Payable 285 1,000.00
GENERAL JOURNAL
Sales tax is computed and
paid by the retail customer at the time of
the sale.
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Sales of $12,500 x 8% sales tax = $1,000 Sales Tax
Payable
Sales of $12,500 x 8% sales tax = $1,000 Sales Tax
Payable
O11.3
©CourseCollege.com
19
Debit Credit
2007 Balance Forward 11,764.96
10-Feb J9 11,764.96 0.00
LEDGER
Account Name: SALES TAX PAYABLE Acct #: 285
Date ItemPost Ref. Debit Credit
BALANCE
The firm pays sales tax payable on a schedule required by the
taxing authority
The firm pays sales tax payable on a schedule required by the
taxing authorityProfit
Debit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Sales Tax
Debit Credit
2007 Balance Forward 16,323.00
31-Jan J9 13,500.00 29,823.00
10-Feb J9 11,764.96 18,058.04
LEDGER
Account Name: CASH Acct #: 100
Date ItemPost Ref. Debit Credit
BALANCE
Page 9
Date Description PR Debit Credit
10-Feb Sales Tax Payable 285 11,764.96
Cash 100 11,764.96
GENERAL JOURNAL
Pay the accumulated sales tax payable
O11.3
©CourseCollege.com
20
•Taxing authorities are usually cities, counties and other local taxing districts•Can apply to both real estate and personal property*•Real estate includes all land and improvements which are permanently attached to the land•Personal property includes all equipment, furniture and non real estate fixtures •Taxes levied are based on assessments (valuations)•Property taxes are an expense of the business operations
* The term personal property does not refer to non business property but to business property that is not real estate
•Taxing authorities are usually cities, counties and other local taxing districts•Can apply to both real estate and personal property*•Real estate includes all land and improvements which are permanently attached to the land•Personal property includes all equipment, furniture and non real estate fixtures •Taxes levied are based on assessments (valuations)•Property taxes are an expense of the business operations
* The term personal property does not refer to non business property but to business property that is not real estate
Property Tax
O11.3
©CourseCollege.com
21
Page 11
Date Description PR Debit Credit
31-Mar Property Tax Expense 590 1,450.00
Property Tax Payable 295 1,450.00
GENERAL JOURNAL
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Property Tax
Following the Matching
concept, each month gets an
accrual adjustment of the estimated property tax
expense.
O11.3
©CourseCollege.com
22
Property Tax•Property taxes are usually billed annually •The monthly adjustments are based on an estimate of the final tax bill•Depending on timing, firms will often have some level of property tax expense accrued when the tax bill arrives
•Property taxes are usually billed annually •The monthly adjustments are based on an estimate of the final tax bill•Depending on timing, firms will often have some level of property tax expense accrued when the tax bill arrives
In the following example, the firm has been accruing estimated property tax expense of $1,450 per month for 11 months. The final tax bill arrives with a total of $18,200 due. The final property tax expense entry brings the total payable up to the actual amount due.
In the following example, the firm has been accruing estimated property tax expense of $1,450 per month for 11 months. The final tax bill arrives with a total of $18,200 due. The final property tax expense entry brings the total payable up to the actual amount due.
O11.3
©CourseCollege.com
23
Debit Credit
2007 Balance Forward 15,950.00
30-Dec J14 2,250.00 18,200.00
LEDGER
Account Name: PROPERTY TAX EXPENSE Acct #: 590
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 15,950.00
30-Dec J14 2,250.00 18,200.00
1/ 5/ 08 J14 18,200.00 0.00
LEDGER
Account Name: PROPERTY TAX PAYABLE Acct #: 295
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 38,675.00
1/ 05/ 08 J14 18,200.00 20,475.00
LEDGER
Account Name: CASH Acct #: 100
Date ItemPost Ref. Debit Credit
BALANCE
Page 14
Date Description PR Debit Credit
30-Dec Property Tax Expense 590 2,250.00
Property Tax Payable 295 2,250.00
5-Jan Property Tax Payable 295 18,200.00
Cash 100 18,200.00
GENERAL JOURNAL $18,200 —$15,950 to date = $2,250.
Example
Pay the accumulated property tax
payable
O11.3
©CourseCollege.com
24
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
11.4
Short term notes are current liabilities, typically due in one year or less
Two types:
•Interest bearing
•Face amount includes interest
Short term notes are current liabilities, typically due in one year or less
Two types:
•Interest bearing
•Face amount includes interest
ST notes can be secured and unsecured
Objective 11.4: Describe accounting for Short Term
Notes Payable
©CourseCollege.com
25
Examples are: 1. Cash for operations borrowed from a
lender
2. Inventory purchased and directly financed with a note
3. Financing for nonoperating assets purchased such as equipment
4. Conversion of accounts payable to note payable
Examples are: 1. Cash for operations borrowed from a
lender
2. Inventory purchased and directly financed with a note
3. Financing for nonoperating assets purchased such as equipment
4. Conversion of accounts payable to note payable
Short Term Notes Payable
11.4
©CourseCollege.com
26
For interest bearing notes, calculate interest accrued using the following formula:
For interest bearing notes, calculate interest accrued using the following formula:
With year end Dec 31, 2007, a 90 day note is signed
Dec 1 for $60,000 at 8%:
Interest expense and interest payable at year end:$60,000 x .08 x 30/360 = $400
Interest expense and additional interest payable at maturity:
$60,000 x .08 x 60/360 = $800
With year end Dec 31, 2007, a 90 day note is signed
Dec 1 for $60,000 at 8%:
Interest expense and interest payable at year end:$60,000 x .08 x 30/360 = $400
Interest expense and additional interest payable at maturity:
$60,000 x .08 x 60/360 = $800
Principal
amount
Annual Interest
rate
Time Period
in yearsInterestX X =
Short Term Notes Payable –Interest Bearing
2007
2008
11.4
©CourseCollege.com
27
Interest bearing note -Example
$60,000Face Value
180 days after date I promise to pay to the order of:
Sixty thousand and no/100 -----------------------------------Dollars
plus annual interest at a rate of 8%
Date
PROMISSORY NOTEApril 1, 2007
Phoung Nguyen
Coast National Bank
$60,000Face Value
180 days after date I promise to pay to the order of:
Sixty thousand and no/100 -----------------------------------Dollars
plus annual interest at a rate of 8%
Date
PROMISSORY NOTEApril 1, 2007
Phoung Nguyen
Coast National Bank
11.4
©CourseCollege.com
28
Page 7
Date Description PR Debit Credit
1-Dec Cash 100 60,000.00
Short Term Notes Payable 215 60,000.00
GENERAL JOURNAL
Debit Credit
2007 Balance Forward 0.00
1-Dec J7 60,000.00 60,000.00
LEDGER
Account Name: SHORT TERM NOTES PAYABLE Acct #: 215
Date ItemPost Ref. Debit Credit
BALANCE
Short Term Notes Payable –Interest Bearing
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Debit Credit
2007 Balance Forward 1,600.00
1-Dec J7 60,000.00 61,600.00
LEDGER
Account Name: CASH Acct #: 100
Date ItemPost Ref. Debit Credit
BALANCE
When the note is signed
Adjusting entry at year end
11.4
©CourseCollege.com
29
Debit Credit
2007 Balance Forward 1,260.00
31-Dec J7 400.00 1,660.00
LEDGER
Account Name: INTEREST EXPENSE Acct #: 599
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 0.00
31-Dec J7 400.00 400.00
LEDGER
Account Name: INTEREST PAYABLE Acct #: 225
Date ItemPost Ref. Debit Credit
BALANCE
Short Term Notes Payable –Interest Bearing
Page 7
Date Description PR Debit Credit
31-Dec Interest Expense 599 400.00
Interest Payable 225 400.00
GENERAL JOURNAL
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Interest expense for the first 30
days
Journal entry at maturity and payoff
11.4
©CourseCollege.com
30
Debit Credit
2007 Balance Forward 0.00
1-Mar J7 800.00 800.00
LEDGER
Account Name:INTEREST EXPENSE Acct #: 599
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 400.00
1-Mar J7 400.00 0.00
LEDGER
Account Name:INTEREST PAYABLE Acct #: 225
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 60,000.00
1-Mar J7 60,000.00 0.00
LEDGER
Account Name:SHORT TERM NOTES PAYABLE Acct #: 215
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2008 Balance Forward 79,500.00
1-Mar J7 61,200.00 18,300.00
LEDGER
Account Name:CASH Acct #: 100
Date ItemPost Ref. Debit Credit
BALANCEAt payoff, the
note and interest payable are extinguished
Interest expense
for the last 60 days
Page 7
Date Description PR Debit Credit
1-Mar Short Term Notes Payable 215 60,000.00
Interest Payable 225 400.00
Interest Expense 599 800.00
Cash 100 61,200.00
GENERAL JOURNAL Short Term Notes
Payable –Interest Bearing
11.4
©CourseCollege.com
31
•No stated interest rate
•Face amount of the note includes the interest that will be due at maturity
•Contra liability account used to record the difference
•No stated interest rate
•Face amount of the note includes the interest that will be due at maturity
•Contra liability account used to record the difference
Short Term Notes Payable –Face amount includes interest
11.4
©CourseCollege.com
32
Discount on Short Term Notes Payable
(10)
Carrying value 100
The net effect or “weight”
on the balance sheet is called the
carrying value
Short Term Notes Payable
110
Short Term Notes Payable –Face amount includes interest
11.4
©CourseCollege.com
33
Discount on Short Term Notes Payable
(10)
Carrying value 100
In this example,
this amount will become the interest
due at maturity
Short Term Notes Payable
110
Short Term Notes Payable –Face amount includes interest
11.4
©CourseCollege.com
34
Face amount includes interest -Example
$1,050Face Value
180 days after date I promise to pay to the order of:
One thousand fifty and n0/100 -----------------------------------Dollars
Date
PROMISSORY NOTEApril 1, 2007
Thomas Brown
Coast National Bank
$1,050Face Value
180 days after date I promise to pay to the order of:
One thousand fifty and n0/100 -----------------------------------Dollars
Date
PROMISSORY NOTEApril 1, 2007
Thomas Brown
Coast National Bank
11.4
Journal entry at inception
©CourseCollege.com
35
Debit Credit
2007 Balance Forward
1-Apr J7 50.00 50.00
LEDGER
Account Name: DISCOUNT ON S. T. NOTES PAYABLE Acct #: 235
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 0.00
1-Apr J7 1,050.00 1,050.00
LEDGER
Account Name: SHORT TERM NOTES PAYABLE Acct #: 225
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 3,450.00
1-Apr J7 1,000.00 4,450.00
LEDGER
Account Name: CASH Acct #: 100
Date ItemPost Ref. Debit Credit
BALANCE
Carrying value on April 1 is $1,050 —
$50 = $1,000.
Face amount includes interest -Example
ProfitDebit Credit or
Loss
Expenses
BALANCE SHEET INCOME STATEMENT
Assets Liabilities Revenue
Equity
Page 7
Date Description PR Debit Credit
1-Apr Cash 100 1,000.00
Discount on Short Term Notes Payable 235 50.00
Short Term Notes Payable 225 1,050.00
GENERAL JOURNAL
11.4
At maturity
©CourseCollege.com
36
Debit Credit
2007 Balance Forward 345.00
1-Oct J7 50.00 395.00
LEDGER
Account Name: INTEREST EXPENSE Acct #: 599
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 50.00
1-Oct J7 50.00 0.00
LEDGER
Account Name: DISCOUNT ON S. T. NOTES PAYABLE Acct #: 235
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 1,050.00
1-Oct J7 1,050.00 0.00
LEDGER
Account Name:SHORT TERM NOTES PAYABLE Acct #: 225
Date ItemPost Ref. Debit Credit
BALANCE
Debit Credit
2007 Balance Forward 8,400.00
1-Oct J7 1,050.00 7,350.00
LEDGER
Account Name: CASH Acct #: 100
Date ItemPost Ref. Debit Credit
BALANCE
Interest expense for the term of the note
Face amount includes interest -ExamplePage 7
Date Description PR Debit Credit
1-Oct Short Term Notes Payable 225 1,050.00
Interest Expense 599 50.00
Discount on Short Term Notes Payable 235 50.00
Cash 100 1,050.00
GENERAL JOURNAL
The discount & note payable return to
zero
11.4
©CourseCollege.com
37
O11.5
Objective 11.5: Calculate & explain the AP payment period
Accounts Payable Payment Period –The % of COGS represented by the Accounts Payable balance (expressed in the # days of the entire year).
The fewer the number of days, the more diligent the firm is in making AP payments.
365 x (AP / Cost of Goods Sold for the year) =
Accounts Payable Payment Period
Accounts Payable Payment Period –The % of COGS represented by the Accounts Payable balance (expressed in the # days of the entire year).
The fewer the number of days, the more diligent the firm is in making AP payments.
365 x (AP / Cost of Goods Sold for the year) =
Accounts Payable Payment Period
©CourseCollege.com
38
The AP payment period answers the following question:How many days is the firm expected to take to pay the present balance of Accounts Payable?
AP payment period
COGS
APAP
payment period
O11.5
The AP balance is the end of year
total. COGS is for the
year.
X 365
©CourseCollege.com
39
Harianto ImportsIncome StatementFor the year ending 12/31/07
Assets Liabilities Sales 630,000Cash 56,000 AP 186,000 Less Sales R&A (7,560)AR 122,000 Credit Line 110,000 Net Sales 622,440
Inventory 311,000 Loan Payable 10,400 ExpensesSupplies 12,000 Total Liab. 306,400 COGS 478,800Equipment 45,000 Equity Wages 63,500
Owner, Capital 239,600 Supplies 1,120Total Assets 546,000 Total Liab. + Equity 546,000 Rent 18,500
Utilities 13,400Miscellaneous 1,200
Total Expenses 576,520
142 DAYS
Net Income 45,920(AP/COGS x 365)
Harianto ImportsBalance SheetAs of 12/31/07
AP Payment Period
Example –AP payment period
186,000 / 478,800 x 365 = 142
O11.5
©CourseCollege.com
40
End Unit 11