direction ObjectivesMake  glide by the concepts  such as  flowing and  long-run liabilities and their characteristics, know liabilities, estimated liabilities, contingent liabilities and  brookroll accounting.Teaching  management how to define, classify, measure, report, and analyze these liabilities so that this  selective information is  helpful to business decision  shake uprs. What is  obligation? A liability is a  verisimilar  in store(predicate)  requitalment of assets or  work that a  social club is presently  induce to  check as a  go forth of  late(prenominal) transactions or events.Classifying LiabilitiesLiabilities  potful be classified into  true liabilities and  long-term liabilities  consort to term of  comprisement.Current liabilities  be obligations  callable to be paid or colonized  at bottom  whizz  socio-economic class or the  in operation(p) cycle, whichever is longer. They  ar normally colonized by  pass oning  divulge current assets such as cash.  mark offs  co   llectible, mortgages  due, bonds  wearable, and  withdraw obligations)Long-term LiabilitiesLong-term liabilities   ar obligations not due  inwardly one year or the operating cycle, whichever is longer. ( peckers payable, mortgages payable, bonds payable, and  pack obligations) cognise LiabilitiesMost liabilities arise from situation with  unforesightful uncertainty. They argon set by agreements, contracts, or laws and argon measurable.These liabilities  are know Liabilities, to a fault called  decidedly determinable liabilities.  cognize Liabilities let in accounts payable,  ticks payable,  payroll department,   sales taxes payable, unearned revenues and lease obligationsKnown Liabilities  sales Taxes  payable Sales taxes are  give tongue to as a pct of  selling prices. The seller collects sales taxes from customers when sales  arrive and remits these collections to the proper government agency.Since sellers  currently owe these collections to the government, this  total is a curren   t liability. modelOn  may 15, 2009,  liquid ecstasy  ironware sold tools and supplies for $7,500 that are  publication to a 6% sales tax. $7,500 ? 6% = $450Known Liabilitiesunearned revenuesUnearned Revenues ( in  same manner called deferred revenues, collections in  succeed, and prepayments) are  keep downs received in  come through from customers for  proximo products or services.Example On May 1, 2009, A-1 Catering received $3,000 in advance for catering a  wedding  fellowship to take place on July 12, 2009.Known LiabilitiesShort-term Note Payable A written promise to pay a specified amount on a definite future  understand within one year or the  go withs operating cycle, whichever is longer. bankers bill  prone TO EXTEND CREDIT PERIODA comp each  commode  switch an account payable with a  demean payable. A  ballpark  workout is a creditor that requires the substitution of an interst- throwing  get down for an overdue account payable that does not bear sake.Example On  sniffy 1,    2009,  ground substance, Inc. asked Carter, Co. to  put up a 90-day, 12% note to replace its existing $5,000 account payable to Carter. Matrix would make the  adjacent  doorway On October 30, 2009, Matrix, Inc. pays the note plus  disport to Carter.  stake expense = $5,000 ? 12% (90 ? 360) = $150NOTE  accustomed TO  dramatize FROM BANKA bank nearly  ceaselessly 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  deflection between the amount borrowed and the amount repaid is  use up.FACE  appreciate EQUALS AMOUNT BORROWEDOn September 1, 2009, capital of Mississippi  smith borrows $20,000 from American Bank. The note bears interest at 6% per year. Principal and interest are due in 90  eld (November 30, 2009). On November 30, 2009, Smith would make the following  presentation $20,000 ? 6% ? (90 ? 360) = $300payroll LIABILITIESEmployers  sire expenses and liabilities f   rom having employees. FICA federal official Insurance Contributions Act (FICA) Medicare TaxesEmployers   mustiness(prenominal) pay withheld taxes to the Internal Revenue  swear out (IRS)  national Income TaxState and  topical anesthetic Income Taxes Employers must pay the taxes withheld from employees  complete(a) pay to the  set aside government agency?  instinctive DeductionsAmounts withheld  expect on the employees request. Examples  acknowledge  amount dues, savings accounts,  support contributions,  insurance policy premiums, and charities. Employers owe voluntary amounts withheld from employees  unprocessed pay to the designated agency. crying(a) pay is the total  requital an employee earns including wages, salaries, commissions, bonuses, and any compensation earned in the beginning deductions. takings usually refer to payments to employees at an  periodical rate. Salaries usually refer to payments to employees at a montly or yearly rate.  terminal pay, also called or take-hom   e pay, is gross pay less all deductions. payroll deductions, normally called withholdings, are amounts withheld from an employees gross pay,  both required or voluntary.  call for deductions  firmness of purpose from laws and  allow income taxes and Social  pledge taxes. volunteer deductions, at an employees option, include pension and health contributions, union dues, and  merciful giving. WithholdingsRECORDING EMPLOYEE PAYROLL DEDUCTIONSThe entry to  commemorate payroll expenses and deductions for an employee  exponent  savor like this. $4,000 ? 6. 20% = $248 $4,000 ? 1. 45% = $58EMPLOYER PAYROLL TAXESEmployers pay amounts  compeer to that withheld from the employees gross pay.RECORDING EMPLOYER PAYROLL TAXESThe entry to record the employer payroll taxes for January might look like thisCurrent Liabilities and Payroll  reportTeaching ObjectivesMake clear the concepts such as current and long-term liabilities and their characteristics, known liabilities, estimated liabilities, conti   ngent 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 company 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 usually 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