1) proper accounting for common current liabilities (accounts payable, accrued liabilities, etc.), notes payable, and bonds
- Liabilities due within a one year or less
-Increased (credited) when a company receives goods or services on credit.
-Decreased (debited) when the company pays on its account.
Liabilities for expenses that have been incurred but not paid at the end of
the accounting period. Relates to various unpaid expenses,
-Advertising, Electricity, Corporate Income Tax, Interest, Payroll Tax, Warranties.
In addition to Wages Payable, companies record liabilities for other
aspects of payroll. Two significant payroll liabilities
Amounts subtracted from employees' gross earnings to
determine their net pay. Either required by law or voluntarily requested by employees.
Adam Palmer earned gross pay of $600 in the current payroll period. General Mills withheld $58 in Federal income
taxes, $48.80 for FICA, and $10 for United Way, resulting in net pay of $483.20.
Employer Payroll Taxes
- Employers have other liabilities related to payroll.
1. FICA tax (a “matching” contribution)
2. Federal unemployment tax
3. State unemployment tax
Assume General Mills was required to contribute $16,400 for FICA, $250 for federal unemployment tax, and
$1,350 for state unemployment tax.
Accrued Income Taxes-
Corporations pay taxes not only on payroll but also on
income they earn.
Its calculated by taxable income times tax rate.
General Mill calculated taxable income to be $1,000,000, and is subject to a 35% tax rate, so income taxes
owed are $350,000. ($1,000,000 x 35%)
Unearned Revenue -
Cash received in advance of providing services creates a liability of
services due to the customer
1. Receive cash and create a liability.
(on October 1)
2. Fulfill part of the liability and earn revenue
(on October 31)
dr Wages and Salaries Expense (+E, -SE)
cr Withheld Income Taxes Payable (+L)
cr FICA Payable (+L)
cr United Way Payable (+L)
cr Cash (-A)
dr Payroll Tax Expense (+E, -SE)
cr FICA Tax Payable (+L)
cr Federal Unemployment Tax Payable (+L)
cr State Unemployment Tax Payable (+L)
dr Income Tax Expense (+E,-SE)
cr Income Tax Payable (+L)
dr Cash (+A)
cr Unearned Revenue (+L)
dr Unearned Revenue (-L)
Revenue (+R, +SE)