CH10Reporting+_+Interpreting+Liabilities+09f (1)

CH10Reporting+_+Interpreting+Liabilities+09f (1) - Chapter...

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Chapter 10 - 1 ACCT 207 - Chapter 10 Reporting and Interpreting Liabilities I. Liabilities are probable future sacrifices of economic benefits that arise from past transactions. A. Current liabilities are short-term obligations that will be paid within one year or the operating cycle whichever is longer. B. Companies will reclassify a portion of long-term debt to current (e.g., the amount of principal to be paid within 1 year of B/S date). II. Payroll liabilities Know employer vs. employee responsibility. Know type of taxes and how applied (do NOT memorize rates or maximum amount). A. Employee's responsibilities: 1. Income taxes (Federal, State, City) 2. FICA (Social Security) 3. Medicare 4. Other optional items (i.e., insurance, charitable contributions, garnishments, pensions/retirement, etc.) B. Employer's responsibilities: 1. Employee's Wages 2. "Matching" FICA (Social Security) 3. "Matching" Medicare 4. Unemployment taxes (Federal and State) 5. Other optional items, (i.e., insurances, pensions/retirement, etc)
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Chapter 10 - 2 C. FYI: FICA 2009 and 2010: 6.2% on $106,800 There was a temporary change for 2011. It was it decreased to 4.2% on $106,800. This is expected to return to 6.2% in 2012. Medicare 1.45% on total wages D. Gross pay vs. net pay Salary exp. vs. cash to employee (it is after everything is removed) E. Payroll tax expense (matching FICA, matching Medicare and unemployment taxes). F. Pensions = annuity received from employer during the remaining life time of employee, and possibly spouse, in retirement years (These are quickly disappearing since they are now a liability on the Balance Sheet of the employer. There are also requirements as to how much must be funded. Funded means that they have to start saving and setting aside cash or other investments for a portion of these liabilities. Another issue is that people are living much longer than originally accounted for when developing the retirement package.) G. FICA (social security) is a pension received from the US government in retirement for most employees of most organizations and their spouses. The biggest problem is that there are not enough assets set aside by the government to cover the liabilities especially as the “baby boomers” start retiring. H. 401k (403b for educators) = a way to save for retirement through your employer. This is what is replacing pensions. Both the employee and employer put into a self-directed account managed by an
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Chapter 10 - 3 investment firm. There are many government rules regulating these accounts. These accounts move with the employee as they change jobs. Pensions usually kept an employee “tied” to an employer. Employee contributions are deducted from employee’s income BEFORE personal income taxes are calculated. Income taxes will be paid when the employee starts
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This note was uploaded on 11/15/2011 for the course ACCT 207 taught by Professor Hudchinson during the Fall '08 term at University of Delaware.

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CH10Reporting+_+Interpreting+Liabilities+09f (1) - Chapter...

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