Chapter 10 outline

Accounting: Tools for Business Decision Making

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Chapter 10 Reporting and Analyzing Liabilities Including Appendix C – Time Value of Money, and Appendix D – Payroll Accounting A. Defining Liabilities 1. Liabilities are defined as “creditors' claims on total assets” and as “existing debts and obligations.” 2. These claims, debts, and obligations must be settled or paid at some time in the future by the transfer of assets or services. B. Classifying Liabilities 1. Current liabilities (also called short-term liabilities ): debts that can reasonably be expected to be paid (1) from existing current assets or through the creation of other current liabilities, and (2) within one year or the operating cycle, whichever is longer. 2. Long-term liabilities —Obligations not expected to be paid within the longer of one year or the company’s operating cycle. C. Current Liabilities Examples: a. Accounts payable b. Sales tax payable - Liability to retailer c. Unearned Revenues -Amounts received in advance from customers 1
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d. Short-Term Notes Payable -Know: How to determine due date Calculations for interest and maturity value Adjusting entry for year end accrual o Matching principle o Record interest expense and interest payable Journal entry for payment of principal and interest on due date. Do BE 1, 2, 4, pg. 510; Ex 1, 4, pg. 512; Pr 2A pg. 517 C. Payroll Liabilities (Including Appendix D) 1. Terminology and recording a payroll a. Gross pay —total compensation an employee earns (includes wages, salaries, commissions, bonuses). Debit wage (or salary) expense b. Payroll deductions —amounts withheld from an employee’s gross pay, either required or voluntary; commonly called withholdings. Employee FICA taxes ( Social Security and Medicare taxes ) equal current rate times gross wages subject to tax . (For year 2007, Social Security tax is 6.2% of the first $97,500 earned by the employee in the calendar year and Medicare tax is 1.45% of all amounts earned by the employee). 2
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Credit FICA S.S. and Medicare payable Employee federal, state, and local income tax withholding. Credit federal or state or local income taxes
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Chapter 10 outline - Chapter 10 Reporting and Analyzing...

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