Professional Documents
Culture Documents
Extension Ch.9
Extension Ch.9
9-2
Liabilities
Legal obligations require future
payments of cash or services or
the creation of other liabilities as
a result of past transactions.
Current liabilities: obligations
must be fulfilled in one year or
one operating cycle, whichever is
longer.
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Current Liabilities
Examples of current liabilities with definite amount
as a result of a business transaction:
A/P (accounts payable)
N/P (notes payable including commercial paper
issued)
Current maturity portion of a long-term debt
Sales taxes payable
Accrued liabilities (taxes payable, interest payable,
wage payable)
Payroll taxes withholdings
Unearned revenues
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31,500
30,000
1,500
9-9
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23,540
22,000
1,540
9-10
Payroll Accounting
The term payroll pertains to both:
Salaries - managerial, administrative, and sales
personnel (monthly or yearly rate).
Wages - store clerks, factory employees, and
manual laborers (rate per hour).
Determining the payroll involves computing three
amounts: (1) gross earnings, (2) payroll deductions,
and (3) net pay.
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Voluntary:
Charity
Union dues
Health and life insurance
Pension plans
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FICA Taxes
FICA (Federal Insurance Contributions Act)
established a tax that transfers money from
workers to aged retirees or suffering from a
disability.
Social Security Taxes
Proceeds used for
Pension payments
after a worker has
reached 62 years
Disability benefits for
disabled worker
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Medicare Taxes
Proceeds used for
medical insurance for
eligible people age 65
or over
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FICA Taxes
The social security tax is a designated percentage of
income, up to a certain maximum level of annual income
per employee. After the amount is reached, no further
amounts are due for that year.
6.2% (max earnings taxable is $106,800 for 2009)
The medicare tax is also a designated percentage of
income. However, there is no limit on maximum earnings
taxable. The tax is levied on every dollar of gross income,
without regard to the employees total earnings
1.45%
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1,119.16$
32,890$
FICA
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6.2%
Medical Rate
1.45%
69.39$
16.23$
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Description
7 Payroll Tax Expense
FICA Tax Payable
State Unemployment Tax Payable
Federal Unemployment Tax Payable
To record employer's share of FICA tax and
employer's state and federal unemployment taxes.
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Post.
Ref.
Debit
Credit
1,261.35
1,206.22
48.02
7.11
9-20
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Net Pay
Net Pay
Gross earnings less payroll deductions.
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Payroll Records
Maintaining Payroll Department Records
Employer required by law to keep a cumulative
record of each employees gross earnings,
deductions, and net pay during the year.
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Payroll Records
Maintaining Payroll Department Records
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Wages expense
FICA tax payable
51.60 **
55.00
12.90 ****
Insurance payable
25.00
Wages payable
*
645.00 *
500.50
9-27
Wages payable
Cash
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500.50
500.50
9-28
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67,000
60,800 *
5,400 **
800 ***
$760,000 x 8% = $60,800
9-30
Post-Retirement Benefits
Post-retirement benefits are benefits that employers
provide to retired employees for (1) pensions and (2)
health care and life insurance.
Companies account for post-retirement benefits on the
accrual basis.
Pension plans that involve employee contributions result in liability
for the employer
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Pensions
Post-Retirement Benefits
A pension plan is an agreement whereby employers
provide benefits to employees after they retire.
There are two types of pension plans:
A defined-contribution plan
A defined-benefit plan
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Pensions
Post-Retirement Benefits
In a defined-contribution plan, the plan defines the contribution
that an employer will make but not the benefit that the employee
will receive at retirement.
pension funds that might be invested in stocks, bonds or other investments.
the risk is transferred to the employee
the company merely expenses the periodic contribution as incurred
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