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Current & Long-Term Liabilities in Accounting Flashcards

Current & Long-Term Liabilities in Accounting Flashcards
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Factors that influence demand for bonds

State of the market (bull markets increase bond sales)

High ratings for the bonds

The status of the company offering the bonds

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Bonds
These are kind of like IOUs. Businesses use them to loan money under the expectation that they will receive interest payments and an eventual repayment of funds.
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Current Liabilities
We use this term when discussing payments that are due during the present year, including sales taxes and mortgage payments made during the year.
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Contingent Liability
This refers to potential obligations that a company may end up owing. Recalls, legislature changes or lawsuits may represent this kind of liability.
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Serial Bonds
A type of bond that matures over time. Staggered payments are made by the issuers of these bonds.
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Bearer Bonds
Bonds of this type don't have a registered owner. They are risky, because whoever holds the bond can claim that they have ownership of it.
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Convertible Bonds
These are bonds that can be terminated by the bond holder before they reach the bond's maturity date. This makes profit potential unlimited.
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Debenture / Unsecured Bond
Bonds that rely on the credit ranking of the issuer. These can be risky but they also offer the possibility of earning a higher yield.
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Operating Lease
A type of lease that gives leased equipment back to a lessor at the end of the lease. Payments for this kind of lease are recorded on the income statement.
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Capital Lease
If you have this kind of lease, your company will keep the equipment it leased at the end of the lease. You list your payments on a balance sheet in this kind of lease.
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Long-Term Liabilities
These are liabilities that a company owes for longer than a year. Examples can include capital lease payments, bond principle or pension payments.
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22 cards in set

Flashcard Content Overview

This set of flashcards can help you go over different kinds of current, contingent and estimated liabilities. You'll also find cards that deal with long-term liabilities and how they are recorded during the process of accounting. Different kinds of bonds will be discussed. You'll find cards that address a bond's par value and the use of bond coupons.

Front
Back
Long-Term Liabilities
These are liabilities that a company owes for longer than a year. Examples can include capital lease payments, bond principle or pension payments.
Capital Lease
If you have this kind of lease, your company will keep the equipment it leased at the end of the lease. You list your payments on a balance sheet in this kind of lease.
Operating Lease
A type of lease that gives leased equipment back to a lessor at the end of the lease. Payments for this kind of lease are recorded on the income statement.
Debenture / Unsecured Bond
Bonds that rely on the credit ranking of the issuer. These can be risky but they also offer the possibility of earning a higher yield.
Convertible Bonds
These are bonds that can be terminated by the bond holder before they reach the bond's maturity date. This makes profit potential unlimited.
Bearer Bonds
Bonds of this type don't have a registered owner. They are risky, because whoever holds the bond can claim that they have ownership of it.
Serial Bonds
A type of bond that matures over time. Staggered payments are made by the issuers of these bonds.
Contingent Liability
This refers to potential obligations that a company may end up owing. Recalls, legislature changes or lawsuits may represent this kind of liability.
Current Liabilities
We use this term when discussing payments that are due during the present year, including sales taxes and mortgage payments made during the year.
Bonds
These are kind of like IOUs. Businesses use them to loan money under the expectation that they will receive interest payments and an eventual repayment of funds.
Factors that influence demand for bonds

State of the market (bull markets increase bond sales)

High ratings for the bonds

The status of the company offering the bonds

Estimated Liabilities
Businesses don't know exactly how much these liabilities will cost, but they must include them on balance sheets anyway. Examples can include property taxes, retirement payments and warranties.
Callable
A feature in some bonds that gives users the option of retiring a bond early, possibly at a loss. Users most frequently want to take this option because of changes in interest rates.
Bonds Sold at a Premium
These are bonds sold for more than they'll be worth in the future. These bonds provide an advantage as they allow companies to take in a large initial payment.
Bonds Sold at a Discount
Bonds of this kind are sold for less than their future value. Companies don't get a large initial payment from these bonds, but they don't have to make high annual payments.
Known Liabilities by Agreement
Liabilities created when at least two parties come to an arrangement with one another. The law generally can't enforce these liabilities. They appear in the accounts payable of a balance sheet.
Present Value of a Bond
This is how much a bond is worth at the current moment.
Formula to determine present value of a bond
Multiply the principle by the discount factor for the interest rate. Multiply the yearly interest payment by the annuity's discount factor. Add the two results together.
Annuity
A term used to refer to payments made in a series. An example of this is a bond, since regular payments must be made on bonds.
Bond Financing
A kind of financing that involves selling bonds. Businesses may take advantage of this financing in order to make a profit with the money they borrowed.
Par Value
When talking about bonds, we use this term to refer to the initial amount of money that was borrowed.
Bond Coupon
This is the interest payment made for bonds. These are usually made in six month intervals.

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