Liabilities Flashcards
What are the accrued vacation pay requirements?
- Employee has worked
- Benefits vest or accumulate
- Compensation is probable
- Compensation is estimable
- Employer accrues vacation liability
How do you accrue for contingent liabilities?
Contingent liabilities that are probable and estimable must be recorded with an accrual in the financial statement. Type when there’s a range of potential loss, the most like amount to occur is accrued for. In case there is no better estimated range then the minimum amount would be accrued.
What is one important thing to note in accrual accounting of salary expenses?
Salary expense is incurred immediately when an employee perform services, regardless of when they are paid.
How do you determine salary expense incurred.
The salary expense per day is multiplied by the number of workdays in a month.
How do you determine salary expense incurred.
The salary expense per day is multiplied by the number of workdays in a month.
How is a contingent gain or loss treated?
A contingent gain that is both probable and estimable is not recorded in the financial statement (F/S) until the gain is realized. However the contingent gain is only disclosed in the notes of the F/S.
How are subsequent event classified?
First you need to ask if the event provide additional evidence that condition existed at the year end?
If the answer is YES then it is Type 1 meaning it is recognized(which may require adjustment)
Additional disclosure may be required.
If the answer is a NO then it is a Type 2 meaning it is not recognized and only disclose if it’s material.
How do you calculate accrued interest?
Note’s Principal * Interest Rate * number of months elapsed.
How is deferred compensation treated?
This is an obligation created when an employee’s contract promises future compensation if they stay with a company for a specific period of time. If the contract requires more than one year of service, the company must allocate these cost by expensing it over the years for which the service is provided.
How do you record payroll journal entry?
Debit - Payroll expense (employee’s full salary)
Debit - Payroll tax expense (employer’s share of payroll taxes)
Credit - Cash
Credit - Accrued payroll tax liability (Employer’s share of payroll taxes)
Credit - Withholdings due to IRS (Employee’s share of payroll taxes, withheld by employer and paid later to applicable authority)
How are note payables with no interest rate treated?
Note payable with no stated interest rate is reported at its face amount minus a discount(a contra account) calculated at the imputed interest rate.
How is AP treated in Liabilities?
AP is mostly recorded as a credit balance whenever goods/services are received on credit. However AP is never affected when a buyer purchases good in advance or when goods shipped FOB destination are still in transit.
