Chapter_10_Liabilities - Short Term Liabilities Chapter 10...

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Short Term Liabilities Chapter 10 General Current Liabilities Accounts Payable We have purchased something on account and owe the seller. Note Payable A note payable involves a promissory note. We have signed the note. The note has our unconditional promise to pay, the amount to be paid, when it is to be paid and our signature. Most notes have an interest rate on them. We might have purchased something and given a note. We may have borrowed from a bank. We borrow $1,000 from a bank and give a 12%, 90day note. Cash 1,000 Note Payable 1,000 When the note matures we pay the note and interest. Note Payable 1,000 Interest Expense 30 Cash 1,030 The interest is based on Principal X Interest Rate X Time 1,000 X 12% X 90/360 120 X ¼ 30 The Current portion of Long Term Debt If the long term debt has installment payments the portion that is due this year is a current liability. Unearned Revenue Unearned revenue is a current liability. Review adjustments. Sales Tax Payable Taxes collected by a business are a liability. If you can find anything that still costs one dollar and the sales tax rate is 7% the entry would be Cash 1.07 Sales 1.00 Sales Tax Payable .07 Payroll The payroll entry we have used to this point is: Wage Expense 1,000 Cash 1,000
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The expense and the cash have been the same. We all know that is not the way the paycheck and pay stub appear. There is: Wage Expense 1,000 representing Gross Pay Things that happen to the paycheck representing Deductions Cash that pitiful remnant that represents Net Pay “From ghoulies and ghosties And long-leggedy beasties And things that go bump in the night: Good Lord, deliver us.” Traditional Scottish Prayer We enter the realm of things that go bump in the night; deductions. Income taxes The income tax is a tax on the employee’s income. There is a federal tax and many states and some cities have income taxes. For the federal tax the W-4 form tells the employer the number of withholding allowances the employee is claiming. The federal W-2 form summarizes earnings and withholdings for the employee. Example: Gross pay is $1,000. Income tax withheld is 100. The entry would be; Wage Expense 1,000 Employee Income Tax Payable 100 Cash 900 Anything withheld by the employer is a liability. The employer owes it to someone. The Federal Insurance Contribution Act or FICA
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Chapter_10_Liabilities - Short Term Liabilities Chapter 10...

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