ACG 2021
Current Liabilities and Payroll
 Computing Net Pay
o Formula
Gross Pay
-Federal Income Tax
Withheld
-Social Security Tax
-Medicare Tax
NET PAY
Example 5: Using all the information on Sally, what is her net pay?
Gross pay
Federal withholding
Social security
Medicare
NET PAY
$520.00
96.10
32.24
7.54
384.12 the amount of her paycheck
Liability for Employer’s Payroll Taxes
 Most employers are also subject to federal and state
payroll taxes.
Matches the
 These include
employee’s
o Social security tax
contribution
o Medicare tax
o Federal unemployment compensation tax
 FUTA – Federal Unemployment Tax Act
provides for temporary payments for those
who become unemployed as a result of layoffs
due to economic causes beyond their control.
 Tax of 6.2% on the first $7,000 wages per
employee.
o State unemployment compensation tax
 Varies by state
Created by M. Mari
Fall, 2007
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ACG 2021
Current Liabilities and Payroll
 Florida rates as high as 5.4% of the first
$7,000 of wages per employee.
 In Florida, Form UCT-6 is filed quarterly to
report the tax.
Journal entries:
To record the salaries paid for the period:
Account
Debit
Salaries Expense
Gross pay
Social security tax payable
Medicare tax payable
Federal income withholding
Cash
Credit
Employee’s share
Employee’s share
Employee’s
Net pay
Example 6: Using all the information on Sally, what is the entry to
record her wages for the week?
Gross pay
Federal withholding
Social security
Medicare
NET PAY
AcDe Cr
co bit ed
un
it
t
Sa $5
lar 20
ies
ex
pe
ns
e
Created by M. Mari
Fall, 2007
Page 2 of 5
$520.00
96.10
32.24
7.54
384.12 the amount of her paycheck
ACG 2021
Current Liabilities and Payroll
Fe
d
inc
o
m
e
ta
x
pa
ya
bl
e
FI
C
A
ta
x
pa
ya
bl
e
M
ed
ica
re
ta
x
pa
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$9
6.
10
$3
2.
24
$7
.5
4
$3
Created by M. Mari
Fall, 2007
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ACG 2021
Current Liabilities and Payroll
Ca
sh
84
.1
2
To record the employer’s share of the payroll taxes for the
period:
Account
Debit
Payroll tax expense
FICA tax payable
Medicare tax payable
FUTA payable
SUTA payable
Credit
Total taxes owed
Matches
employees
Matches
employees
6.2% of the first
$7,000 in wages
Based on state
regs
Payment of Payroll Taxes
 Companies are required to deposit payroll taxes due
weekly, monthly or quarterly based on the amount due
each payroll period.
 Companies are required to file quarterly reports on the
payroll taxes
o Form 941: Quarterly Federal Payroll Taxes
 http://www.irs.gov/pub/irs-pdf/f941.pdf
o Form 940: FUTA taxes – annually
 http://www.irs.gov/pub/irs-pdf/f940.pdf
o W-3: Report on total wages and taxes collected
from employees
Created by M. Mari
Fall, 2007
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ACG 2021
Current Liabilities and Payroll
 http://www.irs.gov/pub/irs-pdf/fw3.pdf
o W-2: Wage and Tax Statement for individuals
 http://www.irs.gov/pub/irs-pdf/fw2.pdf
Contingent liabilities
 Some past transactions will result in liabilities if certain
events occur in the future.
 If a contingent liability is PROBABLE and the amount of
the liability can be REASONABLY ESTIMATED, it should
be recorded in the accounts.
 For example: warranty costs
Product warranty expense
Warranty expense
DR
CR
 If a contingent liability is probable but cannot be
REASONABLY ESTIMATED or is POSSIBLE, then the
nature of the contingent liability should be disclosed in the
footnotes to the financial statements.
Created by M. Mari
Fall, 2007
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