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Contingent liabilities on a company�s Balance Sheet can be ordinary business liabilities such as the amount set aside to cover product warranties. They may also include extraordinary items such as the loss of a lawsuit pending in court. When a company warrants its product, it will typically have a history match the common liability account with its correct description. of the cost to repair or replace the products. An entry will be made to record the expense as a percent of sales. LO 3.2Cromwell Corporation has the following trial balance account balances, given in no certain order, as of December 31, 2018. Retained Earnings at January 1, 2018, was $3,600.

Examples of Current Liabilities

Before examining the journal entries, we need some key information. Because part of the service will be provided in 2019 and the rest in 2020, we need to be careful to keep the recognition of revenue in its proper period. 40 in revenue will be recognized in 2019, with the remaining ? Also, since the customer could request a refund before any of the services have been provided, we need to ensure that we do not recognize revenue until it has been earned. The following journal entries are built upon the client receiving all three treatments. First, for the prepayment of future services and for the revenue earned in 2019, the journal entries are shown.

Liability accounts

• The company expects that a large percentage of its sales will occur during a short timeframe and borrows against those future earnings.
• It is used to help calculate how long the company can maintain operations before becoming insolvent.
• In the current year the debtor will pay a total of ?
• Debt financing is often used to fund operations or expansions.
• They will do this for a variety of reasons.
• The most common notes payable are mortgages and personal notes.

This method was more commonly used prior to the ability to do the calculations using calculators or computers, because the calculation was easier to perform. However, with today’s technology, it is more common to see the interest calculation performed using a 365-day year. For example, assume that a landscaping company provides services to clients. The company requires advance payment before rendering service.

Liabilities Explained

• LO 3.5Journalize for Harper and Co. each of the following transactions or state no entry required and explain why.
• This book may not be used in the training of large language models or otherwise be ingested into large language models or generative AI offerings without OpenStax’s permission.
• Terms of the loan require equal annual principal repayments of ?
• Liability accounts have a credit balance.
• As the title infers, the Unearned Income liability is booked when cash is received for a sale, but not earned in the current period.
• LO 3.6Prepare an unadjusted trial balance, in correct format, from the alphabetized account information as follows.

These expenses are called accrued liabilities. The current month’s utility bill is usually due the following month. Once the utilities are used, the company owes the utility company.

Non-Current Liabilities

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LO 3.5Post the following November transactions to T-accounts for Accounts Payable and Inventory, indicating the ending balance (assume no beginning balances in these accounts). LO 3.5Post the following February transactions to T-accounts for Accounts Receivable and Cash, indicating the ending balance (assume no beginning balances in these accounts). LO 3.1Identify the normal balance for each of the following accounts.

v2 Principles of Accounting — Financial Accounting