21. Companies selling products subject to sales taxes are responsible for collecting the sales tax directly from customers and periodically remitting the sales taxes collected to the state and local governments.
22. When a company collects sales taxes, the debit is to Cash and the credit is to Sales Tax Payable.
23. Sales taxes collected from customers by the seller are not an expense, instead they represent current liabilities payable to the government.
24. Long-term obligations such as notes, mortgages, and bonds are reported as long-term liabilities when they become payable within the upcoming year.
25. Given a choice, most managers would choose to record an obligation as long-term rather than current.
26. A contingent liability is an existing, uncertain situation that might result in a loss.
27. We record a contingent liability when the likelihood of the loss occurring is reasonably possible and the amount can be reasonably estimated.
29. Regarding a contingent liability, when no amount within a range of potential losses appears more likely than others, we record the maximum amount in the range.
30. If the likelihood of a loss is reasonably possible rather than probable, we record no entry, but make full disclosure in a footnote to the financial statements to describe the contingency.