Current Liabilities and Payroll doc

Current Liabilities and Payroll Chapter 11 Objective 1 Account for current liabilities of known amount. Accounts Payable …are amounts owed to suppliers for goods or services purchased on account. • Accounts payable do not bear interest expense for the debtor. Accounts Payable Example • Suppose that on June 3, Lloyd’s Sporting Store purchased $1,000 of goods on account from Patti Wholesaler. • What is the journal entry? Inventory 1,000 Accounts Payable 1,000 Purchase on account Short-Term Notes Payable …are promissory notes payable due within one year. • In addition to recording the note payable, the business must also pay interest expense. • If interest expense is accrued at the end of the period, interest payable must also be recorded. Short-Term Notes Payable Example • On April 30, Patti purchased inventory for $10,000 by issuing a 90-day, 10% note payable. • What is the journal entry? Inventory 10,000 Notes Payable 10,000 Purchase inventory on a 90-day, 10% note Short-Term Notes Payable Example • Assume the accounting period ended May 31. • How much interest was accrued as of May 31? • $10,000 × 10% × 31/360 = $86.11 • How does Patti record the payment at maturity? Short-Term Notes Payable Example July 29 Note Payable 10,000.00 Interest Payable 86.11 Interest Expense 163.89 Cash 10,250.00 Sales Tax Payable Example • Most states levy a sales tax on retail sales. • Suppose that a store sold $3,000 worth of merchandise on a given Saturday. • The business collected an additional 5% in sales tax. • How much is the sales tax liability? • $150 Accrued Expenses (Liabilities) – are expenses that have been incurred but not recorded. – salaries – taxes withheld – interest – utilities [...]... Record Salaries Expense: Payroll Tax Expense FICA Tax Payable State Unemployment Tax Payable Federal Unemployment Tax Payable To Record Salaries Expense: Health Insurance Expense for Employees Life Insurance Expense for Employees Pension Expense Employee Benefits Payable Objective 5 Use a Payroll System Payroll System Components – – – – payroll record special payroll bank account payroll checks earnings... vs Current Liability • Suppose a hospital has lost a court case for uninsured malpractice • The hospital estimates that the liability will fall between $1.5 and $2.5 million Contingent vs Current Liability • The hospital must record a loss and a liability of $1.5 million • The hospital must disclose in a note the possibility of an additional $1.0 million loss Objective 3 Compute Payroll Amounts Payroll. .. benefits to people who are out of work Breakdown of Payroll Costs Employer payroll taxes to government $110 Employer cost of health care to insurance co $90 Employer disburses $1,200 Net pay to employee $750 Employee payroll taxes to government $230 Employee Gross Pay – $1,000 Employee union dues $20 Objective 4 Record Basic Payroll Transactions Salary Expense • Salary expense to the employer is the... Employer Payroll Taxes • Social Security (FICA) tax • State unemployment compensation tax • Federal unemployment compensation tax Unemployment Compensation Taxes • Employers paid 5.4% to the states and 0.8% to the federal government on the first $7,000 of each employee’s annual earnings • The state government uses the money to pay unemployment benefits to people who are out of work Breakdown of Payroll. .. 1,500 Unearned Revenue Example • What entry does Dennis record on June 30? June 30 Unearned Revenue 500 Service Revenue 500 Earned service revenue that was collected in advance Objective 2 Account for Current Liabilities That Must be Estimated Estimated Warranty Payable • The matching principle demands that the company record the warranty expense in the same period that the business recognizes sales... defective product and was given a $300 refund Estimated Warranty Payable 300 Cash 300 To record refund under warranty Estimated Vacation Pay Liability Example • Suppose Lloyd’s Sporting Store has a March payroll of $10,000 and vacation pay adds 4% (2 weeks of annual vacation divided by 50 workweeks each year) • How much vacation pay should be accrued? Estimated Vacation Pay Liability Example March 31 Vacation.. .Payroll Liabilities Salary Expense Employee Income Tax Payable FICA Tax Payable Employee Union Dues Payable Salary Payable To record salary expense 10,000 1,200 800 140 7,860 Unearned Revenue Example • . Current Liabilities and Payroll Chapter 11 Objective 1 Account for current liabilities of known amount. Accounts Payable …are. that have been incurred but not recorded. – salaries – taxes withheld – interest – utilities Payroll Liabilities Salary Expense 10,000 Employee Income Tax Payable 1,200 FICA Tax Payable 800 Employee. 500 Service Revenue 500 Earned service revenue that was collected in advance Objective 2 Account for Current Liabilities That Must be Estimated. Estimated Warranty Payable • The matching principle