Chapter 10 Flashcards
Liabilities are created when a company
(1) Buys goods and services on credit,
(2) Obtains short-term loans to cover gaps in cash flows,
(3) Issues long-term debt to obtain money for expanding into new regions and markets.
Short-term obligations that will be paid with current assets within the company’s current operating cycle or within one year of the balance sheet date, whichever is longer.
Current Liabilities
Initial amount of the liability
Cash Equivalent
Additional liability amounts
Increase Liability
Payments Made
Decrease Liability
Purchase of goods/services on credit
Accounts Payable
An expense is incurred in one accounting period, the cash payment in a later period.
Accrued Liabilities
Liability resulting when company collects and owes taxes relating to payroll.
Payroll Tax Payable
Liability resulting when a company collects sales tax for the state.
Sales Tax Payable
Occurs when one company borrows money from another.
Notes Payable
The receipt of cash before goods or services are provided.
Unearned Revenue
Accounts Payable is ________ when a company receives goods or services on credit, and it is _______ when the company pays on its account.
(1) increased (credited)
2) decreased (debited
Liabilities that have been incurred but not yet paid
Accrued Liabilities
Required by law or voluntarily requested by employees and create a current liability for the company.
Payroll Deductions
Income tax, FICA tax, other deductions
Examples of Payroll Deductions
Journal Entry with Payroll Deductions:
dr. Wages and Salaries Expense
cr. Withheld Income Taxes Payable
cr. FICA Payable
cr. United Way Payable
cr. Cash
True or False: Not only does the employee have to pay taxes on the wages they earned, but so does the employer.
True
Employers have other liabilities related to payroll:
(1) FICA Tax
(2) Federal Unemployment Tax
(3) State Unemployment Tax
Employer Payroll Taxes
Journal Entry for Employer Payroll Taxes:
dr. Payroll Tax Expense
cr. FICA Tax Payable
cr. Federal Unemployment Tax Payable
cr. State Unemployment Tax Payable
Calculated by subtracting tax allowed expense from revenues. This taxable income is then multiplied by a tax rate, which ranges for corporations from 15 to 35 percent.
Taxable Income (Accrued Income Taxes)
Journal Entry for Income Tax:
dr. Income Tax Expense
cr. Income Tax Payable
Payments collected from customers at time of sale create a liability that is due to the state government.
Sales Tax Payable
Cash received in advance of providing services creates a liability of services due to the customer.
Unearned Revenue
Recording Unearned Revenue Journal Entry:
dr. Cash
cr. Unearned Revenue