Payables and Taxes Flashcards
Compensation can be accrue
GAAP require an accrual when four criteria are met: (1) The payment of compensation is probable, (2) the amount can be reasonably estimated, (3) the benefits either vest or accumulate, and (4) the compensation relates to employees’ services that have already been rendered.
Accrue Payroll Taxes
The amount of wages subject to payroll taxes for FICA purposes is $80,000. At a 7% rate, the employer’s share of FICA taxes equals $5,600 ($80,000 × 7%). Wages subject to unemployment payroll taxes are $20,000. At a 3% rate, unemployment payroll taxes equal $600 ($20,000 × 3%). Consequently, the total of payroll taxes is $6,200 ($5,600 + $600). A 7% employee rate also applies to the wages subject to FICA taxes. This amount ($80,000 × 7% = $5,600) should be withheld from the employee’s wages and remitted directly to the federal government by the employer, along with the $6,200 in employer payroll taxes.
The Gross Method
e gross method records purchases and accounts payable without regard to purchase discounts available, for example, cash discounts for early payment. The net method records purchases and accounts payable at the cash (discounted) price. If the accounts payable balance at the gross amount is $30,000 and $200 of discounts are available, the accounts payable balance at the net amount must be $29,800.
determine income tax expense
The asset-and-liability approach accrues liabilities or assets (taxes payable or refundable) for the current year. It also recognizes deferred tax amounts for the future tax consequences of events previously recognized in the financial statements or tax returns. These liabilities and assets recognize the effects of temporary differences measured using the tax rate(s) expected to apply when the liabilities and assets are expected to be settled or realized. Accordingly, deferred tax expense (benefit) is determined by the change during the period in the deferred tax assets and liabilities. Income tax expense (benefit) is the sum of current tax expense (benefit), that is, the amount paid or payable, and the deferred tax expense (benefit).
Income tax expense or benefit
This is the sum of the current tax expense or benefit and deferred tax expense or benefit.
Current tax liability
This is equal to taxable income times the applicable tax rate
Deferred tax liability
This records the deferred tax consequences attributable to taxable temporary differences. It is measured using the applicable enacted tax rate and provisions of the enacted tax law.
Deferred tax asset.
This records the deferred tax consequences attributable to deductible temporary differences and carryforwards. It is measured using the applicable enacted tax rate and provisions of the enacted tax law.
