Liabilities Flashcards
Liabilities
The financial obligations a business owes to external parties
Current liabilities
Amounts due to be paid within one year
- Give insights into the business’s ability to pay its debts using the revenue it generates
Ex: accounts payable, payroll liabilities, current business loans, credit card balances, income tax liabilities
Long-term liabilities
Amounts due to be paid in a year or more
Ex: mortgage, long-term loans, vehicle payments
Why might a business CHOOSE to maintain longterm liabilities?
-to maintain cash reserves
-use the money to invest in other lucrative investments
Deferred revenue
Money received in advance by a business for goods and services it has not yet provided
How is a purchase of a gift card recorded on financial statements? Why?
As deferred revenue, a liability, because the payment has been made in advance for goods and services not yet received.
FICA
Federal Insurance Contributions Act
-taxes going into Medicaire and Social Security
OASDI
Old Age, Survivors, and Disability Insurance tax
-part of FICA
HI
Hospital Insurance
-also called the Medicaire Tax
-part of FICA
FUTA
Federal Unemployment Tax Act
-a payroll tax that only the employer pays
SUTA
State Unemployment Tax Act
-funds state-administered unemployment programs
-only paid by employers
SDI
State Disabilities Insurance
-payroll tax that funds employees if they are injured on the job
-only used in some states
Non-exempt employee
Eligible for overtime pay and benefits once they have work over 40 hours in a week
Are hourly employees typically exempt or non-exempt?
Non-exempt (eligible for overtime pay)
Exempt employee
An employee that is not eligible for overtime pay
Are salaried employees typically exempt or non-exempt?
Exempt (not eligible for overtime pay)
FLSA
Fair Labor Standards Act
-establishes things such as minimum pay rules, child labor laws, overtime pay rules
-requires employees to keep records of pay and time
What is the purpose of a W-4? What is it’s full name?
-a tax form completed by the employee upon hiring and returned to the employer
-ensures taxes are being withheld from the employee’s paycheck at the rate established by the employee
-also known as the Employee’s Withholding Certificate
W-2 Form
-a tax form that reports an employee’s annual wages and withheld taxes
-issued by business owner to employees no later than Jan. 31st
Form 941
A tax form businesses file quarterly to report payroll information to the IRS and to pay Medicaire and Social Security taxes for the previous quarter
Form 944
-an alternative to Form 941 for small businesses with a yearly tax liability of $1000 or less
-allows employers to report and pay payroll taxes once a year
Form W-9
-filled out by an independent contractor and given to the business/employer so the business/employer has the correct information to file the 1099 at the end of the year
1099 Form
Issued by employers/businesses to independent contractors who made at least $600 over the calendar year
-must be issued no later than Jan. 31st and copies submitted to IRS
