NAME:
College Accounting
Chapter 11—CURRENT LIABILITIES AND PAYROLL
Structured Notes
Current liabilities are ______________________________________________________________
________________________________________________________________________________
Long-term liabilities are ____________________________________________________________
OBJECTIVE #1: Account for current liabilities of known amount
Accounts Payable
A common transaction is the credit purchase of inventory. To record the purchase of inventory on
account, ______________________ is debited and _____________________ is credited.
Then to pay the liability, ____________________ is debited and ____________________ is credited.
Short-Term Notes Payable
____________________ is a common form of financing that must be paid with one year.
If a short-term note is used to purchase inventory, _________________________ is debited and
____________________ is credited.
At end of year, the interest expense is accrued and ______________________ is debited for the
number of months the note was held and ______________________ is credited.
Then to pay the note the next year, ________________________ is debited for total of the note;
___________________________ is debited for the liability that was due at the end of the preceding
year; and ____________________________ is debited for the amount of interest expense for the
current year; ___________________ is credited for the total borrowed plus interest for the length of
the loan period.
Sales Tax Payable
Why is sales tax payable a current liability? ____________________________________________
When a company pays the tax, ____________________ is debited; and _______________ is credited.
Current Portion of Long-Term Notes Payable
Some long-term notes are paid in __________________. The current portion of notes payable (also
called current maturity) is the ______________________________________________________ .
The remaining portion is long term.
NAME:
At the end of the year, the company may make an adjusting entry to shift the current installment of the
long-term note payable to a current liability by debiting _______________________________ and
crediting ____________________________________.
Accrued Expenses (Accrued Liabilities)
An accrued expense is an __________________________________________________. That’s why
accrued expenses are also called accrued liabilities. An example of an accrued expense is _______
____________________ because accrued expenses typically occur with the passage of time.
Payroll, also called __________________________________________, also creates accrued
expenses.
Unearned Revenues
Unearned revenue is also called _______________________. The business has received cash in
advance and, therefore, has an obligation to _____________________________________________
An example of unearned revenue is the receipt of cash for magazine subscription. To record the
receipt of cash for a magazine subscription, the company would debit ________________________
and credit ________________________________________.
If a third of the subscriptions are delivered during the first of three years, the adjusting entry to
decrease the liability and increase the revenue would be to debit __________________________
and credit _____________________________________________
CURRENT LIABILITIES THAT MUST BE ESTIMATED
OBJECTIVE #2: Account for current liabilities that must be estimated.
An example of a liability that a company knows exists but does not know the exact amount is _____
__________________________, common for companies like General Motors and Sony.
The ____________________________ says to record warranty expense in the same period that
revenue is recorded. The expense occurs when you _______________________, not when you pay
warranty claims. Because the exact amount is not known, the business estimates it warranty expense
and related liability.
To record the accrued warranty expense, __________________________________ is debited and
________________________________ is credited.
Then when the payments are made, __________________________ is debited and _______________
is credited.
Contingent Liabilities
A contingent liability is not an _____________________________. Instead, it is a potential liability
that depends on _________________________________.
The accounting profession divides contingent liabilities into three categories:
NAME:
Likelihood of Actual Loss
Remote
How to Report the Contingency
Reasonably possible
Probable, and the amount of
the loss can be estimated
ACCOUNTING FOR PAYROLL
OBJECTIVE #3: Compute payroll amounts.
Numerous ways to express employee’s pay:
___________________ is pay stated at an annual, monthly, or weekly rate.
___________________ are pay amounts stated at an hourly rate.
______________________ is pay stated as a percentage of a sale amount
______________________ is pay over and above base salary (wage or commission). A bonus is
usually paid for ____________________________ --in a single amount after year-end.
_______________________ are extra compensation—items that are not paid directly to the employee.
Some example of benefits include ____________________________________________________
________________________________________________________________________________
Businesses pay employees at a base rate for a set period called _____________________________ .
For additional hours--________________________, the employee may get a higher pay rate.
Gross Pay and Net (Take-Home) Pay
Gross Pay: ______________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Net Pay (Take-Home Pay): _________________________________________________________
________________________________________________________________________________
The employer writes a paycheck to each employee for his/her ______________________________ .
Amounts withheld from paychecks are called ___________________________________________ .
NAME:
PAYROLLWITHHOLDING DEDUCTIONS
Payroll withholding deductions are the difference between ____________________ and
_____________________ pay.
Payroll deductions fall into 2 categories:
Required deductions, examples include: _______________________________________________
Optional deductions, examples include: _______________________________________________
After being withheld, payroll deductions become the ______________________________________,
who then pays the outside party—taxes to the government, etc.
U.S. law requires companies to withhold _______________________________________________ .
The income tax deducted from gross pay is called ________________________________________ .
The amount withheld depends on _____________________________________________________ .
An employee files Form _________ with his employer to indicate the ________________________
________________________________________________________________________________ .
Each allowance lowers the amount of tax withheld.
The Federal Insurance Contributions Act ________________, also known as the Social Security Act,
created the Social Security Tax.
The Social Security program provides _________________________________________________ .
The law requires employers to withhold ______________________ from employees’ paychecks.
The FICA tax has two components:
1. _____________________________________________________________________________
2. _____________________________________________________________________________
The OASDI tax rate in 2008 was _____________%, applied to the first $ _________________of
employee earnings in a year.
The Medicare portion of the FICA tax applies to _________________________________________ .
The most recent rate is ____________% The text will use a _________________% FICA tax rate.
Many employers offer _________________ plans that let workers select from a menu of insurance
coverage.
Employer Payroll Taxes
In addition to income tax and FICA tax, which are withheld from employee paychecks, __________
Must pay at least three payroll taxes—which do ____________ come out of employee paychecks.
NAME:
1. _____________________________________________________________________________
2. _____________________________________________________________________________
3. _____________________________________________________________________________
EMPLOYER FICA TAX
In addition to the employee’s Social Security tax, the employer must pay _____________________
_______________________.
STATE AND FEDERAL UNEMPLOYMENT COMPENSATION TAXES
_____________________________________________ finance workers’ compensation for people laid
off from work.
In recent years, employers have paid a combined tax of ____________% on the first $ ___________
of each employee’s annual earnings. The proportion paid to the state is _______________%, plus
_____% to the federal government.
Employers use two liability accounts:
________________________________________________________________________________
________________________________________________________________________________
Payroll Accounting
Objective #4: Record basic payroll transactions.
To record Salary Expense: The gross salary amount is debited to ____________________________.
The net (take-home pay) is credited to _________________________. The difference amount(s) are
credited to _______________________________________________________________________ .
To record the Benefits Expense: The various expenses are debited and _______________________
___________________ is credited.
To record Payroll Tax Expense: ________________________________ is debited and these three
accounts are credited: _____________________________________________________________
________________________________________________________________________________
THE PAYROLL SYSTEM
Objective #5: Use a payroll system
The components of the payroll system are: _____________________________________________ ,
___________________________________, and _________________________________________
Payroll Record
Each pay period the company organizes payroll data in a special journal called the ______________
__________________. The payroll record works like a ___________________________________
for recording payroll checks.
The payroll record gives the employer the information needed to ____________________________
NAME:
Payroll Checks
Most companies pay employees by __________________ or _______________________________ .
A paycheck has an attachment that ____________________________________________________ .
Earnings Record
The employer must file a payroll tax return with both _____________________________________ .
These forms must be filed no later than ______________________________ after the end of a quarter.
The employer must also provide the employee with a wage and tax statement, Form ____________ ,
at the end of the year.
The employee earnings record is neither a journal nor a ledger, and it is not required by law. It helps
the employer __________________________________________________.
The W-2 is used to prepare _______________________________________.
Paying the Payroll
Most employers make three cash payments for payrolls:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
NET (TAKE-HOME) PAY TO EMPLOYEES
To pay employees, the company debits _____________________________ and credits __________.
BENEFITS PAID TO INSURANCE COMPANIES AND INVESTMENT COMPANIES
The employer might pay for employees’ insurance coverage and their retirement plans, ____________
_____________ is debited and ____________________ is credited.
PAYROLL TAXES AND OTHER DEDUCTIONS
The employer must send the government two sets of payroll taxes: __________________________
________________________________________________________________________________
INTERNAL CONTROL OVER PAYROLL
There are two main controls for payroll:
________________________________________________________________________________
________________________________________________________________________________
CONTROLS FOR EFFICIENCY
NAME:
Reconciling the bank account can be time-consuming because there may be many outstanding
paychecks. To limit the outstanding checks, a company may use ____________________________
________________________________________________________________________________ .
CONTROLS TO SAFEGUARD PAYROLL DISBURSEMENTS
Companies have separate department for the following payroll functions:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
REPORTING CURRENT LIABILITIES
Objective #6: Report current liabilities on the balance sheet.
At the end of each period, the company reports all of its current liabilities on the _______________
_________________.
ETHICAL ISSUES IN REPORTING LIABILITIES
If a company fails to accrue warranty expense, total expenses will be __________________________
and net income to be ______________________________.