1. Chapter 10

2. Account for current liabilities of known amount

3. Copyright (c) 2009 Prentice Hall. All rights reserved. Accounts Payable Amounts owed for products and services purchased on account Short-Term Notes Payable Common form of financing; company incurs interest expense Sales Tax Payable Tax levied by state on retail sales; company collects from customer and remits to government 3

4. Copyright (c) 2009 Prentice Hall. All rights reserved. Accrued Expenses Expense incurred, but not yet paid; often an adjusting entry. Examples: salaries & interest payable Current portion of Long-Term Notes Payable Principal portion of long-term debt due in the next year Unearned revenues Customers make payment before receiving product or service 4

5. 5 GENERAL JOURNAL DATEDESCRIPTIONDEBITCREDIT 2011 31Equipment16,000 Notes payable16,000 Purchase equipment by signing a note payable 1231Interest expense1,200 Interest payable1,200 Accrued interest on note payable $16,000 x 9% x 10/12 Copyright (c) 2009 Prentice Hall. All rights reserved.

6. 6 GENERAL JOURNAL DATEDESCRIPTIONDEBITCREDIT 2012 31Interest payable1,200 Interest expense240 Notes payable16,000 Cash17,440 To record payment of note and interest $16,000 x 9% x 2/12 Copyright (c) 2009 Prentice Hall. All rights reserved.

7. Account for current liabilities that must be estimated

8. Copyright (c) 2009 Prentice Hall. All rights reserved.  Companies guarantee products through warranty agreements  Warranty expense is estimated in same period as sale of product ◦ Matching principle JOURNAL DateAccountsDebitCredit Warranty Expense$$$$ Estimated Warranty Payable $$$$ 8

9.  Potential liability  Depends on a future event  Accounting treatment depends on likelihood that the future event will create a liability: 9 Remote Reasonably possible Probable Copyright (c) 2009 Prentice Hall. All rights reserved.

10. Likelihood of LossHow to Report RemoteNo disclosure required Reasonably possibleDescribe in notes to the financial statements ProbableRecord an expense and liability based on estimated amounts 10

11. Calculate payroll and payroll tax amounts

12. 12 Copyright (c) 2009 Prentice Hall. All rights reserved. SalaryPay stated at annual, monthly, or weekly rate WagesPay stated at an hourly rate CommissionPay stated as percentage of sales amount BonusPay over and above base salary BenefitsExtra compensation not paid in cash, such as health insurance or retirement contributions

13.  Straight time ◦ base rate paid for a set number of hours  Overtime ◦ additional time worked for which employees receive a higher rate ◦ usually 1.5 times the straight time rate 13Copyright (c) 2009 Prentice Hall. All rights reserved.

14. 14 Gross pay Total amount earned during a pay period Expense to the employer Net pay Take-home pay The amount the employee keeps Copyright (c) 2009 Prentice Hall. All rights reserved.

15. 15 Gross pay Required deductions Optional deductions Net pay Income & Social security taxes Insurance, retirement plans, charitable contributions Copyright (c) 2009 Prentice Hall. All rights reserved.

16.  Government requires employers to deduct income tax from employees’ gross pay  Amount depends on: ◦ Gross pay ◦ The number of withholding allowances employee claims on Form W-4  Each allowance lowers amount of tax withheld  Number of allowances depends on marital status and number of children and/or dependents 16Copyright (c) 2009 Prentice Hall. All rights reserved.

17.  Two components: ◦ Old age, survivors’ and disability insurance (OASDI)  6.2% of pay up to a wage base which increases each  In 2008, wage base = $102,000 ◦ Health insurance (Medicare)  1.45% of pay with no maximum wage base 17Copyright (c) 2009 Prentice Hall. All rights reserved.

18.  In addition to employee withholdings, employers pay at least three taxes based on payroll: ◦ Social Security (FICA) tax  Employer matches amount withheld from employees’ pay ◦ State unemployment compensation tax (SUTA)  In many states, 5.4% of first $7,000 paid to each employee ◦ Federal unemployment compensation tax  Frequently, 0.8% of the first $7,000 paid to each employee 18Copyright (c) 2009 Prentice Hall. All rights reserved.

19. Journalize basic payroll transactions

20. Salaries expense Employee benefits Employer Payroll Taxes 20Copyright (c) 2009 Prentice Hall. All rights reserved.

21. 21 GENERAL JOURNAL DATEDESCRIPTIONDEBITCREDIT Salary expense Employee income tax payable FICA tax payable Payable to health insurance Payable to United Way Salary payable Copyright (c) 2009 Prentice Hall. All rights reserved.

22. 22 GENERAL JOURNAL DATEDESCRIPTIONDEBITCREDIT Health insurance expense Life insurance expense Retirement plan expense Employee benefits payable Copyright (c) 2009 Prentice Hall. All rights reserved.

23. 23 GENERAL JOURNAL DATEDESCRIPTIONDEBITCREDIT Payroll tax expense FICA tax payable Federal unemployment tax payable State unemployment tax payable Copyright (c) 2009 Prentice Hall. All rights reserved.

24. HoursPay rate Total 40$14$560 22$21 462 62$1,022 24 GENERAL JOURNAL DATEDESCRIPTIONDEBITCREDIT Salary expense1,022 Employee income tax payable73 FICA tax payable78 Payable to United Fund10 Salary payable861 Copyright (c) 2009 Prentice Hall. All rights reserved.

25. Controls for efficiency  Use of two payroll bank accounts  Use of computer processing Controls to Safeguard Payroll Disbursements  Hiring and firing separate from accounting  Use of photo IDs & time clocks 25Copyright (c) 2009 Prentice Hall. All rights reserved.

26. Human Resources Hire & fire Payroll Keep employee earnings records Accounting Records payroll transactions Treasurer Distributes paychecks 26Copyright (c) 2009 Prentice Hall. All rights reserved.