Current Liabilities and Payroll Accounting

Teaching ObjectivesMake extend the concepts such as contemporary and long- end point liabilities and their characteristics, known liabilities, estimated liabilities, contingent liabilities and give inroll depicting.Teaching Focus how to define, classify, measure, report, and crumple these liabilities so that this information is useful to stage business decision clear uprs. What is liability? A liability is a probable afterlife chip inment of assets or run that a comp each is presently stimulate to make as a result of past transactions or events.Classifying LiabilitiesLiabilities can be classified ad into authentic liabilities and long-term liabilities according to term of payment.Current liabilities ar obligations ascribable to be paid or settled within one yr or the operational cycle, whichever is longer. They argon normally settled by gainful out current assets such as cash. nones payable, mortgages payable, bonds payable, and study obligations)Long-term Liab ilitiesLong-term liabilities are obligations non due within one socio-economic class or the operating cycle, whichever is longer. ( line of descents payable, mortgages payable, bonds payable, and affiance obligations) cognize LiabilitiesMost liabilities arise from situation with little uncertainty. They are set by agreements, contracts, or laws and are measurable.These liabilities are Known Liabilities, alike called definitely determinable liabilities. Known Liabilities hold accounts payable, observes payable, payroll, sales taxes payable, unearned revenues and lease obligationsKnown Liabilities Sales Taxes collectable Sales taxes are stated as a percent of sell prices. The seller collects sales taxes from customers when sales number and remits these collections to the proper government agency.Since sellers currently owe these collections to the government, this amount is a current liability.ExampleOn whitethorn 15, 2009, Max Hardware sold tools and supplies for $7,500 tha t are subject to a 6% sales tax. $7,500 ? 6% = $450Known Liabilitiesunearned revenuesUnearned Revenues (also called deferred revenues, collections in advance, and prepayments) are amounts received in advance from customers for future day products or services.Example On May 1, 2009, A-1 Catering received $3,000 in advance for catering a wedding party to take interpose on July 12, 2009.Known Liabilities short Note Payable A indite promise to pay a specified amount on a definite future accompaniment within one year or the companys operating cycle, whichever is longer.NOTE GIVEN TO EXTEND credence PERIODA company can switch an account payable with a note payable. A common event is a creditor that requires the substitution of an interst-bearing note for an delinquent account payable that does not bear stakes.Example On sumptuous 1, 2009, Matrix, Inc. asked Carter, Co. to accept a 90-day, 12% note to replace its existing $5,000 account payable to Carter. Matrix would make the fo llowing entry On October 30, 2009, Matrix, Inc. pays the note plus interest to Carter. stakes expense = $5,000 ? 12% (90 ? 360) = $150NOTE GIVEN TO lift out FROM BANKA bank nearly incessantly requires a borrower to sign a promissory note when making a loan. When the note matures, the borrower repays the note with an amount big than the amount borrowed.This difference mingled with the amount borrowed and the amount repaid is interest.FACE VALUE EQUALS get along BORROWEDOn September 1, 2009, Jackson smith borrows $20,000 from American Bank. The note bears interest at 6% per year. Principal and interest are due in 90 days (November 30, 2009). On November 30, 2009, metalworker would make the following entry $20,000 ? 6% ? (90 ? 360) = $300 paysheet LIABILITIESEmployers incur expenses and liabilities from having employees. FICA federal damages Contributions Act (FICA) Medicare TaxesEmployers mustiness pay withheld taxes to the native Revenue Service (IRS) Federal Income TaxSta te and Local Income Taxes Employers must pay the taxes withheld from employees gross pay to the appropriate government agency? freewill DeductionsAmounts withheld depend on the employees request. Examples include essence dues, savings accounts, aid contributions, insurance premiums, and charities. Employers owe free amounts withheld from employees gross pay to the designated agency.Gross pay is the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions. return usually refer to payments to employees at an hourly rate. Salaries usually refer to payments to employees at a montly or periodic rate. Net pay, also called or bring home pay, is gross pay less(prenominal) all deductions. Payroll deductions, commonly called withholdings, are amounts withheld from an employees gross pay, any required or voluntary. Required deductions result from laws and include income taxes and Social aegis taxes.Voluntary dedu ctions, at an employees option, include pension and health contributions, union dues, and charitable giving. WithholdingsRECORDING EMPLOYEE PAYROLL DEDUCTIONSThe entry to magnetic disc payroll expenses and deductions for an employee might front like this. $4,000 ? 6. 20% = $248 $4,000 ? 1. 45% = $58EMPLOYER PAYROLL TAXESEmployers pay amounts equal to that withheld from the employees gross pay.RECORDING EMPLOYER PAYROLL TAXESThe entry to read the employer payroll taxes for January might explore like thisCurrent Liabilities and Payroll AccountingTeaching ObjectivesMake clear the concepts such as current and long-term liabilities and their characteristics, known liabilities, estimated liabilities, contingent liabilities and payroll accounting.Teaching Focus how to define, classify, measure, report, and analyze these liabilities so that this information is useful to business decision makers. What is liability? A liability is a probable future payment of assets or services that a com pany is presently obligated to make as a result of past transactions or events.Classifying LiabilitiesLiabilities can be classified into current liabilities and long-term liabilities according to term of payment.Current liabilities are obligations due to be paid or settled within one year or the operating cycle, whichever is longer. They are usually settled by paying out current assets such as cash. notes payable, mortgages payable, bonds payable, and lease obligations)Long-term LiabilitiesLong-term liabilities are obligations not due within one year or the operating cycle, whichever is longer. (notes payable, mortgages payable, bonds payable, and lease obligations)Known LiabilitiesMost liabilities arise from situation with little uncertainty. They are set by agreements, contracts, or laws and are measurable.These liabilities are Known Liabilities, also called definitely determinable liabilities. Known Liabilities include accounts payable, notes payable, payroll, sales taxes payable , unearned revenues and lease obligationsKnown Liabilities Sales Taxes Payable Sales taxes are stated as a percent of selling prices. The seller collects sales taxes from customers when sales occur and remits these collections to the proper government agency.Since sellers currently owe these collections to the government, this amount is a current liability.ExampleOn May 15, 2009, Max Hardware sold tools and supplies for $7,500 that are subject to a 6% sales tax. $7,500 ? 6% = $450Known Liabilitiesunearned revenuesUnearned Revenues (also called deferred revenues, collections in advance, and prepayments) are amounts received in advance from customers for future products or services.Example On May 1, 2009, A-1 Catering received $3,000 in advance for catering a wedding party to take place on July 12, 2009.Known LiabilitiesShort-term Note Payable A written promise to pay a specified amount on a definite future date within one year or the companys operating cycle, whichever is longer.NOTE GIVEN TO EXTEND CREDIT PERIODA company can replace an account payable with a note payable. A common example is a creditor that requires the substitution of an interst-bearing note for an overdue account payable that does not bear interest.Example On August 1, 2009, Matrix, Inc. asked Carter, Co. to accept a 90-day, 12% note to replace its existing $5,000 account payable to Carter. Matrix would make the following entry On October 30, 2009, Matrix, Inc. pays the note plus interest to Carter. Interest expense = $5,000 ? 12% (90 ? 360) = $150NOTE GIVEN TO BORROW FROM BANKA bank nearly always requires a borrower to sign a promissory note when making a loan. When the note matures, the borrower repays the note with an amount larger than the amount borrowed.This difference between the amount borrowed and the amount repaid is interest.FACE VALUE EQUALS AMOUNT BORROWEDOn September 1, 2009, Jackson Smith borrows $20,000 from American Bank. The note bears interest at 6% per year. Principal and interest are due in 90 days (November 30, 2009). On November 30, 2009, Smith would make the following entry $20,000 ? 6% ? (90 ? 360) = $300PAYROLL LIABILITIESEmployers incur expenses and liabilities from having employees. FICA Federal Insurance Contributions Act (FICA) Medicare TaxesEmployers must pay withheld taxes to the Internal Revenue Service (IRS) Federal Income TaxState and Local Income Taxes Employers must pay the taxes withheld from employees gross pay to the appropriate government agency? Voluntary DeductionsAmounts withheld depend on the employees request. Examples include union dues, savings accounts, pension contributions, insurance premiums, and charities. Employers owe voluntary amounts withheld from employees gross pay to the designated agency.Gross pay is the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions.Wages usually refer to payments to employees at an hourly rate. Salaries usu ally refer to payments to employees at a montly or yearly rate. Net pay, also called or take-home pay, is gross pay less all deductions. Payroll deductions, commonly called withholdings, are amounts withheld from an employees gross pay, either required or voluntary. Required deductions result from laws and include income taxes and Social Security taxes.Voluntary deductions, at an employees option, include pension and health contributions, union dues, and charitable giving. WithholdingsRECORDING EMPLOYEE PAYROLL DEDUCTIONSThe entry to record payroll expenses and deductions for an employee might look like this. $4,000 ? 6. 20% = $248 $4,000 ? 1. 45% = $58EMPLOYER PAYROLL TAXESEmployers pay amounts equal to that withheld from the employees gross pay.RECORDING EMPLOYER PAYROLL TAXESThe entry to record the employer payroll taxes for January might look like this