Current Liabilities and Payroll Accounting

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