Chapter 9 Current Liabilities Flashcards
What are current liabilities?
Payments that we owe in 1 year or less
What are accounts payable?
-We purchased on credit
-NB: credit
What is sales tax payable?
-an amount of money charged on a good payable to the government (state)
-based on a %
-sales tax is on top of price of good
-sales tax is a liability to the company because they owe it to the government
-company has to “remit” the collected sales tax to the government
What is unearned revenue?
-when our company receives payment but we have not yet provided the good or service
-as good/service is provided unearned revenues becomes earned (revenue)
What is short term notes payable?
-loan due within 1 year or less
-on a loan interest must be paid (interest is paid on borrowed money)
-principal- total amount borrowed (face amount)
-date of maturity- when full loan amount is due
interest= principal x interest rate annual rate (1yr) x (days/360)
When notes extend over 2 accounting periods…
-A note is issued in 1 period but not paid until the next period
-At year end you must record an AJE to accrue interest
What are payroll liabilities?
-Amount of the total salary taken out for taxes to be paid to the government (“withholding”)
What is the equation for net pay?
Gross pay (total contract amount of salary) - taxes (withholding; company is required by law to withhold money from employee checks) = net pay “take home pay”
What is FICA?
-Federal Insurance Contribution Act
-Social Security and Medicare
-Paid by BOTH employee and employer (pay an equal percentage)
What are income taxes?
-Tax paid in the employee’s salary
-Imposed by government (federal, state, local)
-Paid by employee
-Also any employee benefits withheld on employee behalf (ex: retirement contributions, union fees, health care)
What is FUTA and SUTA?
Federal Unemployment Tax Act
State Unemployment Tax Act
-Supports unemployment workers
-Employer only
What does the employer pay?
FICA, FUTA, and SUTA
What does the employee pay?
FICA and Income taxes
What is the payroll taxes expense account?
-Equity
-NB: debit
What are contingent liabilities?
-Potential obligation that depends on a future event from a past transaction or event
Ex: Pending lawsuit
(Financial outcome depends on result > win/lose?)
What does “probable” mean?
likely to lose AND the amount of the loss is able to be reasonably determined
*Record AJE
What does “reasonably possible” mean?
Could occur but not as likely
Probable but we don’t know the amount
*Disclose in FS footnotes
What does “remote” mean?
unlikely to occur
*NO JE/ NO disclosure
