How would the accounting equation of boston company

BBA 2201, Principles of Accounting I 1

Course Learning Outcomes for Unit VIII Upon completion of this unit, students should be able to:

1. Examine the accounting cycle.

2. Identify business transactions.

3. Generate inventory systems and costing methods.

4. Appraise the classes and transactions of liabilities. 4.1 Describe the three main characteristics of liabilities. 4.2 Explain why it is important to classify liabilities into short and long term.

6. Analyze financial statements to inform decision makers.

8. Compare International Financial Reporting Standards (IFRS) to Generally Accepted Accounting

Principles (GAAP).

Course/Unit Learning Outcomes

Learning Activity

1 Final Exam

2 Final Exam

3 Final Exam

4 Unit Lesson; Chapter 11; Chapter 14; Final Exam

4.1 Unit Lesson; Chapter 11; Chapter 14; Essay

4.2 Unit Lesson; Chapter 11; Chapter 14; Essay

6 Final Exam

8 Final Exam

Reading Assignment Chapter 11: Current Liabilities and Payroll Chapter 14: Long-Term Liabilities

Unit Lesson Liabilities In the accounting equation, assets = liabilities + equity, we can see that there are two claims to the assets of

a business—creditors and owners. The accounting equation can also be written as: assets – liabilities = equity. In this equation, we can see that the liabilities of a business require the use of assets to satisfy the amount owed. A liability is an amount owed to lenders, suppliers, or government agencies and requires the use of assets or

future revenues to satisfy the debt. There are two categories of liabilities—current and long term. A current liability is the amount owed that must be paid within one year or within the company’s operating cycle, whichever is longer (Miller-Nobles, Mattison, & Matsumura, 2016).

UNIT VIII STUDY GUIDE

Liabilities

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The most common current liability is accounts payable. An account payable is an amount due a vendor or supplies for products, supplies or services (Miller-Nobles et al., 2016). Retail businesses will also have sales tax payable. Sales tax payable is the amount of sales tax collected by the retailer that must be remitted to the tax agencies (Miller-Nobles et al., 2016). Because the accounts payable and sales tax payable are due within one year (generally due within 30 days) they are a current liability. Some businesses will receive cash payments in advance of providing a service, which is referred to as unearned revenue (or deferred revenue). Many gyms and fitness centers will have deferred revenue. If you have ever paid for a year’s membership at the beginning of the year to receive a discount, then you were involved in a transaction with unearned revenue. The gym does not earn the revenue until they have provided you with the monthly membership. For example: If you were to purchase a one year membership for $600, the gym would debit cash for $600 and credit unearned revenue for $600 (a liability). As each month passes, and you do not discontinue your membership, the gym will record revenue on a monthly basis. Each month the gym will record $50 of revenue ($600 divided by 12 months). The gym will debit unearned revenue and credit revenue for $50. Long-term liabilities are liabilities that will become due beyond one year or beyond the company’s operating cycle (Miller-Nobles et al., 2016). A mortgage payable, note payable, or bonds payable are examples of long- term liabilities. Generally, most long-term liabilities have a current portion as well. For example: Let’s say that a company has a 30-year mortgage on their office building. The mortgage is $500,000, payments are due monthly with an interest rate of 4.0%. The first year’s amortization is below in Figure 1.

Figure 1

In this case, the loan was entered into on January 1, 2015 for $500,000. The company would record a current liability in the amount of $8,057.94 and a long-term liability in the amount of $491,942.06. The current liability portion is shown as a current liability on the balance sheet and listed as “Current portion of long-term debt.” Also, notice that with each payment being made, the payment amount remains the same but the allocation between principal and interest changes with each payment. On this particular amortization, the total payments of $2,387.08 will be $859,348.80 over the course of 30 years. Of this amount, $500,000 is principal and the remaining $359,348.80 is interest expense. The final exam contains questions and problems related to the

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concepts covered in this unit. If you need extra practice working these problems, be sure to review the examples created by the CSU Math Center in the suggested reading section of this unit.

Reference Miller-Nobles, T., Mattison, B., & Matsumura, E. M. (2016). Horngren’s accounting (11th ed.). Boston, MA:

Pearson.

Suggested Reading

The CSU Math Center has created sample problems and examples that will help you to complete the problems on the unit assessment. For more detailed explanations or to receive a lesson recorded by the Math Center, please contact a math specialist at teamsucceed@columbiasouthern.edu or submit a math center request by clicking here. Click here to access the Unit VIII example worksheet.

Learning Activities (Nongraded) Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information. Flash cards For a review of the Key Terms of the unit, click here to access the interactive Unit VIII Flashcards in PowerPoint form. (Click here to access a PDF version.)

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