Chapter 8

Current
Liabilities
(Kısa Vadeli Yabancı
Kaynaklar / Cari Borçlar)

1
 Liabilities
classified according to their due dates:

due within one year or the operating cycle

are classified as current liabilities
loans or credits that mature in more than
one year are classified as long-term
liabilities

2
 Current Liabilities
1. Short Term Bank Loans
2. Current Portion of Long-term Debt
3. Accounts Payable
4. Notes Payable
5. Accruals
6. Unearned Revenues
7. Payroll Liabilities
8. Corporate Income Taxes
9. Value Added Taxes
10. Product Warranty Liability

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 Current Portion of Long-term Debt
The portion of LT-debt that matures within one year at the date of the balance
sheet (i.e. the installments of LT-debt to be paid within the next 12 months) -
should be classified as a current liability

Aycan Industries borrows TL250.000 from World Bank on 31 May 2005 with a
term of 4 years, semi-annual installments, 1 year grace period. B/S Date: 31 Dec’05

Repayment Date Repayment Amount

(in TL millions)
31.May.06 31.250 On 31 Dec’05,
30.Kas.06 31.250 installments within
the next 12 months
31.May.07 31.250
30.Kas.07 31.250
31.May.08 31.250
30.Kas.08 31.250
31.May.09 31.250
30.Kas.09 31.250
Total 250.000 4
Date Account Title and Description Debit Credit
31.M ay.05 Cash 250.000
Long-Term Bank Loans 250.000
To record loan obtained from
World Bank

Date Account Title and Description Debit Credit

31.Ara.05 Long-Term Bank Loans 62.500
Current Portion of Long-Term
Debt 62.500
To reclassify current portion of
loan obtained from World Bank

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 Notes Payable
Interest Separately Stated on the Note

Kavaklıdere/Ankara 31August 2004

Ninety days after the date of the note I promise to pay

UBZ Bank the sum of TL 18.000 plus the interest at the

rate of 22%

Aycan Industries Incorporated

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 When the note is issued
Date Account Title and Description Debit Credit
31.Ağu.04 Cash 18.000
Notes Payable 18.000
To record the note issued to
UBZ Bank

When the note is repaid

Date Account Title and Description Debit Credit

29.Kas.04 Notes Payable 18.000
Interest Expense 990
Cash 18.990
To record payment of notes
issued
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 Unearned Revenues
- Create an obligation (current liability) since cash has been collected but
the related revenue is not earned, i.e. the good has not been delivered or the
service has not been performed - On 30 Nov.
2005, rent
Date Account Title and Description Debit Credit
revenue is
30.Kas.05 Cash 6.000 collected as TL
Rent Income 2.000 6.000 millions
Unearned Revenue 4.000 representing 3
months’ rent,
To record 3 months' rent
including the
received rent of
November + the
next two
months
Date Account Title and Description Debit Credit
31.Ara.05 Unearned Revenue 2.000
Rent Income 2.000 At the end
To realize rent revenue earned of Dec., the
for December rent of
December
(TL 2.000
mill.)
becomes 8
earned
 Payroll Related Liabilities
An employee usually receives a payment that is less
than the gross pay of that employee- the net pay
Deductions:
Required deductions that must be paid by the employee
according to tax and social security regulations
Optional deductions authorized by the employee for
special purposes (such as private pension plans)

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 Payroll Liabilities (Required)
Employee Income Taxes (Employee obligation - paid by
employer & deducted from gross salary) – Filed w/tax office on the
20th and paid on the 26th of the following month
Stamp Duty (Employee obligation – paid by employer & deducted
from gross salary) – Paid together w/income taxes.
Social Security Premiums* (Employer & Employee
obligations, i.e. premiums by the employer & premiums by the
employee) – Paid on the last day of the following month.
Unemployment Insurance Premium (Employee &
Employer obligations) – Paid together w/SSK premiums

* There are three operating social security agencies in Turkey: SSK, Emekli Sandığı
and Bağkur. For the purposes of this course, we will focus on SSK.
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Sample Payroll – pg. 336

TEM P O
CO RP O RATIO N
P AYRO LL O F NO V EM BER 2 0 0 5

D A YS G R O SS EM PL O YEE EM PL O Y EE TAX C U M U L A T IVE IN C O M E T A X IN C O M E ST A M P TOTA L N ET EM P L O YER E M PL O YER

NAME W O R K ED PA Y U IP SS K P EX EM P T IO N T A X B A SE B A SE TA X DUTY D ED U C T IO N S PA Y SSK P U IP

ALİ GELİR 30 2 .0 0 0 40 280 188 9 .2 6 6 1 .4 9 3 224 12 556 1 .4 4 4 390 60

TO TAL 2 .0 0 0 40 280 188 9 .2 6 6 1 .4 9 3 224 12 556 1 .4 4 4 390 60

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 Payroll Entry
Date AccountTitleandDescription Debit Credit
30.Kas SalaryExpense (gross pay) 2.000
SSKpremiums (employer) 390
UnemploymentInsurancePremium (employer) 60
Cash (netpay) 1.444
Recorded as payable TaxesPayable-IncomeTaxes (employee-incl.in gross salary) 224
& paid on the 26th of
the following month TaxesPayable-StampDuty (employee-0.6%of gross pay) 12
SSKPremiumsPayable * Recorded as payable & paid
on the last day of the
770
TorecordNovemberpayroll following month

cost of the employee to the employer is TL 2.450 - employee receives TL 1.444

* SSK premiums – Employer share TL 390

Unemployment insurance premium- Employer share 60
SSK premium-Employee share 280
Unemployment insurance premium – Employee share 40
Total payable to SSK TL 770
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 Corporate Income Taxes
Quarterly income tax amount for the current year income is
calculated based on the quarterly income-as of March 31, June 30,
September 30 and December 31 (Prepaid Tax), in addition to
annual corporate tax payment computed for the fiscal year and
declared in April the following year
Mercan jewelry paid a total of TL 13.850 as prepaid tax for
the year 2004. At the end of the fiscal year which is the
calendar year, net income before tax was determined as TL
82.500 and the related income tax expense as TL 24.750.
The entry on that date:
Date Account Title and Description Debit Credit
31-Dec-04 Income Tax Expense 24.750
Prepaid Tax 13.850
Income Taxes Payable 10.900
To record taxation on income for 2004

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 Value Added Taxes
VAT is reported and paid monthly. Each month’s
VAT declaration must be filed with the Tax Office
on the 20th and paid on the 26th of the following
month.
amount of VAT paid for goods and services
purchased is deducted from the amount of VAT
received on sales of goods and services
if VAT on sales > the VAT on purchases → the
entity is required to pay the difference to the Tax
Office
if VAT on purchases exceeds the VAT on sales →
the difference is carried forward to the next month
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 Accounting for VAT transactions
14 April: Purchased 10 items for TL17.110 on
credit including 18% VAT
20 April: Sold 22 items for TL 37.642 on credit
including 18% VAT
20 May: Filed the VAT return
26 May: Paid the necessary amount

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 VAT entries
Date AccountTitleand Description Debit Credit
14.Nis Merchandise Inventory 14.500
VAT Deductible(Receivable from the State - İndirilecek KDV) 2.610
Accounts Payable 17.110
To record merchandise purchased on credit
20.Nis Accounts Receivable 37.642
Sales 31.900
VAT Payable 5.742
To record sales made on April 20
26.May VAT Payable 5.742
VAT Deductible 2.610
Cash(Paid to the State) 3.132
To record VAT return filed for April
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 VAT entries
Date AccountTitleandDescription Debit Credit

OPPOSITE CASE: VAT CARRIEDFORWARD

26.May VAT Carried Forward 3.132

VAT Payable 2.610
VAT Deductible 5.742
To recordVAT returnfiledfor April

VAT Deductible (VAT paid for purchases) > VAT Payable (VAT
received from sales), the difference becomes VAT Carried Forward
(Devreden KDV) and is deducted from the next month’s VAT Payable
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 Product Warranty Liabilities-1
Sales with product warranty are customary in most industires. In Turkey, according to the new Consumer Law, there is a 2-year minimum parts &
service warranty for industrial goods against production defects.
Matching Principle - warranty expenses of sales in a period should be recorded in the same period

Product Warranty Expense is an estimation based on past experience (Since the company
cannot know the exact amount of the warranty expense at the time of the sale)

Strong Home Products, TVs one year warranty

Past experience: 3% of products had defective parts
Average cost of replacement TL 750; Company sold 15.000 units in 2004
The estimated defective parts from 2004 sales = 15.000*3%= 450 units
The estimated cost of the defective parts = 450*750 =TL337.500

31.Ara.04 Product Warranty Expense 337.500

Product Warranty Liability 337.500
To record estimatedproductwarranty
liability for the year 2004

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 Product Warranty Liabilities-2
4 January 2005, one of the customers brought back a TV set purchased in
2004, and the Company agreed to replace the part of the set that was
defective. The cost of the replaced part was TL 775 on 4 January 2005.

Date Account Title and Description Debit Credit

4-Jan Product Warranty Liability 775
2001 Merchandise Inventory 775
To record replaced defective part

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 Contingent Liabilities
(Şarta Bağlı Yükümlülükler)
A potential liability arising from a past transaction and that depends on a
future event.

Ex: Product Warranty Liability or Pending Litigation (if the company

loses the litigation case, it will become liable to pay a certain amount of
money)
⇒ All contingent liabilities should be recorded in the B/S if they are likely to occur and the
amount can be reasonably determined (e.g. Product Warranty), or disclosed in the notes to
financial statements if contingency meets only one of these conditions (e.g. Pending
Litigation)

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 Common Financial Ratios
Net Working Capital = Current Assets - Current Liabilities

Beginning Acct.Pay. + Ending Acct.Pay.

Average Accounts Payable =
2

Cost of Goods Sold +/- Changes in Invent

ory
Accounts Payable Turnover =
Average Accounts Payable

365
Average Payment Period =
Accounts Payable Turnover
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