ACG 2021 Current Liabilities and Payroll Current Liabilities Liabilities debt obligations to third parties Creditor the lender who makes the loan Debtor individuals or businesses that receive the credit Current liabilities obligations that will be paid out of current assets and are due within a short time usually within one year Long term liabilities are obligations due for a period of time greater than one year Current Liabilities Accounts payable Arise from purchasing goods or services for use in a company s operations or for purchasing merchandise for resale Current portion of Long term Debt Long term liabilities are often paid back in periodic payments called installments Long term liability installments that are due within the coming year must be classified as a current liability Short term Notes Payable Notes may be issued when merchandise or other assets are purchased Also issued to creditors to temporarily satisfy an account payable created earlier Example 1 Suppose that a business issues a 60 day 10 note for 4 000 on an overdue payable dated May 1 2007 Record the entry for the establishment of the note Date May 1 Account Accounts payable Notes payable Created by M Mari Fall 2007 Page 1 of 2 Debit 4 000 Credit 4 000 ACG 2021 Current Liabilities and Payroll Now record the payment on the due date Interest computation Principal X Rate X Time Interest 4 000 x 10 x 60 360 100 Maturity value Principal Interest 4 000 100 4 100 Date July 1 Account Notes payable Interest expense Cash Created by M Mari Fall 2007 Page 2 of 2 Debit 4 000 100 Credit 4 100
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