ACCOUNTING EXAM 3 CH. 8 REVIEW

When a company collects sales taxes, the debit is to Cash and the credit is to Sales Tax Payable.

Accounts payable are amounts the company owes to suppliers of merchandise or services that it has bought on credit.

Sales taxes collected from customers by the seller are not an expense. Instead, they represent current liabilities payable to the government.

The adjusting entry to record a contingent liability requires a debit to a loss (or expense) account and a credit to a liability.

If the likelihood of loss is remote, disclosure of a contingency usually is not required.

If the likelihood of a loss is reasonably possible rather than probable, we record no entry, but make full disclosure in a note to the financial statements to describe the contingency.

In a classified balance sheet, we categorize all liabilities as current.

When a company borrows cash from a bank promising to repay the amount borrowed plus interest, the borrower reports its liability as notes payable.

Interest is stated in terms of an annual percentage rate to be applied to the face value of the loan.

Given a choice, most managers would choose to record an obligation as long-term rather than current.