Slide Chapter 10 Liabilities Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc,, 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-1 Irwin/McGraw-Hill Chapter 10 Liabilities
Slide 10-2 The Nature of liabilities Defined as debts or obligations arising from past transactions or events Maturity =1 year or less Maturity >1 year Current Noncurrent Liabilities Liabilities LOU Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-2 Irwin/McGraw-Hill The Nature of Liabilities I.O.U. Defined as debts or obligations arising from past transactions or events. Maturity = 1 year or less Maturity > 1 year Current Liabilities Noncurrent Liabilities
Slide 10-3 Distinction between debt and Equity The acquisition of assets is financed from two sources: DEBT EQUITY Funds from creditors, with Funds from a definite due date, and owners sometimes bearing interest Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-3 Irwin/McGraw-Hill Distinction Between Debt and Equity The acquisition of assets is financed from two sources: Funds from creditors, with a definite due date, and sometimes bearing interest. Funds from owners DEBT EQUITY
Slide Liabilities Question Devon Mfg borrows $100,000 from First Bank. The loan will be repaid in 20 years and has an annual interest rate of 8% Is this a current liability or a noncurrent liability? Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-4 Irwin/McGraw-Hill Liabilities Question Devon Mfg. borrows $100,000 from First Bank. The loan will be repaid in 20 years and has an annual interest rate of 8%. Is this a current liability or a noncurrent liability?
Slide 10-5 Liabilities Question Devon Mfg borrows $100,000 from First Bank. The loan will be repaid in 20 years and has an annual interest rate of 8% Is this a current liability or a noncurrent liability? The obligation will not be paid within one year or one operating cycle, so it is a noncurrent liability. Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-5 Irwin/McGraw-Hill Liabilities Question The obligation will not be paid within one year or one operating cycle, so it is a noncurrent liability. Devon Mfg. borrows $100,000 from First Bank. The loan will be repaid in 20 years and has an annual interest rate of 8%. Is this a current liability or a noncurrent liability?
Slide 10-6 Evaluating Liquidity An important indicator of a company ability to meet its current obligations. Two commonly used measures Working Capital Current Assets -Current Liabilities Current Ratio Current Assets ? Current Liabilities Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-6 Irwin/McGraw-Hill Evaluating Liquidity Current Ratio = Current Assets ?Current Liabilities Working Capital = Current Assets - Current Liabilities An important indicator of a company抯 ability to meet its current obligations. Two commonly used measures:
Slide Liabilities Question Devon Mfg has current liabilities of $230,000 and current assets of $322,000 What is Devon's current ratio? Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-7 Irwin/McGraw-Hill Liabilities Question Devon Mfg. has current liabilities of $230,000 and current assets of $322,000. What is Devon’s current ratio?
Slide 10-8 Liabilities Question Devon Mfg has current liabilities of $230,000 and current assets of $322,000 What is Devon's current ratio? Current Current Current Ratio Assets Liabilities $322,000?$230,000 Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-8 Irwin/McGraw-Hill Liabilities Question Current Ratio = Current Assets ? Current Liabilities = $ 322,000 ? $ 230,000 = 1.4 Devon Mfg. has current liabilities of $230,000 and current assets of $322,000. What is Devon’s current ratio?
Slide 10-9 Accounts Payable Short-term obligations to suppliers for purchases of merchandise and to others for goods and services Office Merchandise supplies Inventory Invoices Invoices Utility and Shipping phone bills charges Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-9 Irwin/McGraw-Hill Accounts Payable Short-term obligations to suppliers for purchases of merchandise and to others for goods and services. Merchandise Inventory invoices Shipping charges Utility and phone bills Office supplies invoices
Slide 10-10 Notes payable When a company borrows money, a note payable is created Current Portion of Notes Payable The portion of a note payable that is due within one year, or one operating cycle, whichever is longer. Current Notes Payable Total Notes Payable Noncurrent Notes Payable Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Slide 10-10 Irwin/McGraw-Hill Notes Payable Current Notes Payable Noncurrent Notes Payable Total Notes Payable When a company borrows money, a note payable is created. Current Portion of Notes Payable The portion of a note payable that is due within one year, or one operating cycle, whichever is longer