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11-1
Chapter 11
Current Liabilities and
Payroll Accounting
Chapter
11-2 Accounting Principles, Ninth Edition
Study Objectives
1. Explain a current liability, and identify the major types
of current liabilities.
2. Describe the accounting for notes payable.
3. Explain the accounting for other current liabilities.
4. Explain the financial statement presentation and analysis
of current liabilities.
5. Describe the accounting and disclosure requirements for
contingent liabilities.
6. Compute and record the payroll for a pay period.
7. Describe and record employer payroll taxes.
8. Discuss the objectives of internal control for payroll.
Chapter
11-3
Current Liabilities and Payroll Accounting
Chapter
11-4
Accounting for Current Liabilities
Question
To be classified as a current liability, a debt must be
expected to be paid:
a. out of existing current assets.
b. by creating other current liabilities.
c. within 2 years.
d. both (a) and (b).
Notes Payable
Written promissory note.
Require the borrower to pay interest.
Issued for varying periods.
Chapter
11-7 SO 2 Describe the accounting for notes payable.
Accounting for Current Liabilities
Chapter
11-8 SO 2 Describe the accounting for notes payable.
Accounting for Current Liabilities
Chapter
11-9 SO 2 Describe the accounting for notes payable.
Accounting for Current Liabilities
$5,400
Chapter
11-10 SO 2 Describe the accounting for notes payable.
Accounting for Current Liabilities
Chapter
11-11 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Chapter
11-12 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Chapter
11-13 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Cash 23,540
Sales 22,000
Sales tax payable 1,540
Chapter
11-14 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Unearned Revenue
Revenues that are received before the company
delivers goods or provides services.
1. Company debits Cash, and
credits a current liability
account (unearned revenue).
2. When the company earns
the revenue, it debits the
Unearned Revenue account,
and credits a revenue account.
Chapter
11-15 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Chapter
11-17 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Chapter
11-18 SO 3 Explain the accounting for other current liabilities.
Accounting for Current Liabilities
Chapter
11-19
Accounting for Current Liabilities
Question
Working capital is calculated as:
a. current assets minus current liabilities.
b. total assets minus total liabilities.
c. long-term liabilities minus current liabilities.
d. both (b) and (c).
Probability Accounting
Probable Accrue
Reasonably
Footnote
Possible
Remote Ignore
Question
A contingent liability should be recorded in the accounts
when:
a. it is probable the contingency will happen, but the
amount cannot be reasonably estimated.
b. it is reasonably possible the contingency will happen,
and the amount can be reasonably estimated.
c. it is probable the contingency will happen, and the
amount can be reasonably estimated.
d. it is reasonably possible the contingency will happen,
but the amount cannot be reasonably estimated.
Chapter
11-28
Determining the Payroll
Gross Earnings
Total compensation earned by an employee (wages
or salaries, plus any bonuses and commissions).
Illustration 11-8
Chapter
11-29 SO 6 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory: Voluntary:
FICA tax Charity
Federal income tax Retirement
State income tax Union dues
Health and life insurance
Pension plans
Chapter
11-30 SO 6 Compute and record the payroll for a pay period.
Determining the Payroll
Social Security taxes
Payroll Deductions
Supplemental retirement,
Mandatory: employment disability, and
medical benefits.
FICA tax
In 2008, the rate was
Federal income tax 7.65% (6.2% Social Security
State income tax plus 1.45% Medicare) on the
first $102,000 of gross
earnings for each employee.
For purpose of illustration,
assume a rate of 8% on the
first $100,000 of gross
earnings, maximum of $8,000.
Chapter
11-31 SO 6 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory: Employers are required to
withhold income taxes from
FICA tax
employees pay.
Federal income tax Withholding amounts are
State income tax based on gross wages and
the number of allowances
claimed.
Chapter
11-32 SO 6 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:
FICA tax
Federal income tax Most states (and some
cities) require employers
State income tax
to withhold income taxes
from employees’ earnings.
Chapter
11-33 SO 6 Compute and record the payroll for a pay period.
Determining the Payroll
Net Pay
Gross earnings minus payroll deductions.
Illustration 11-11
Chapter
11-34 SO 6 Compute and record the payroll for a pay period.
Recording the Payroll
Illustration 11-12
Employee earnings record
Chapter
11-35 SO 6 Compute and record the payroll for a pay period.
Recording the Payroll
Chapter
11-36 SO 6 Compute and record the payroll for a pay period.
Recording the Payroll
Chapter
11-37 SO 6 Compute and record the payroll for a pay period.
Recording the Payroll
Federal Tax
Withholding
Chapter
11-39 SO 6 Compute and record the payroll for a pay period.
Recording the Payroll
Chapter
11-40 SO 6 Compute and record the payroll for a pay period.
Chapter
11-41
Employer Payroll Taxes
Chapter
11-42 SO 7 Describe and record employer payroll taxes.
Employer Payroll Taxes
Chapter
11-44 SO 7 Describe and record employer payroll taxes.
Employer Payroll Taxes
Chapter
11-45 SO 7 Describe and record employer payroll taxes.
Employer Payroll Taxes
Question
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.
d. FICA taxes.
Chapter
11-47 SO 7 Describe and record employer payroll taxes.
Filing and Remitting Payroll Taxes
Chapter
11-48 SO 7 Describe and record employer payroll taxes.
Internal Control for Payroll
Chapter
11-49 SO 8 Discuss the objectives of internal control for payroll.
Additional Fringe Benefits
Paid absences
Post-retirement benefits
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Chapter
11-54