Chapter 9: Accounting for current liabilities- Savannah Johnson

Gross Pay

• total compensation an employee earns, including wages, salaries,
  commissions, and bonuses

• amount is recorded as Salaries Expense (Dr).

Net Pay

• gross pay minus all deductions (take-home pay)

• recorded as Salaries Payable (Cr)

Social Security tax

6.2% of the first $160,200 earned by the employee in the calendar year

Medicare tax

1.45% of all wages earned by the employee

Internal Control of Payroll

1. Employee hiring
2. Payroll preparation
3. Timekeeping
4. Payroll payment

Times Interest Earned Ratio

Income before interest expense and income taxes / interest expense

Uncertainty in Liabilities

• Whom to pay?

• When to pay?

• How much to pay?

Current liabilities

• short-term liabilities

• Liabilities due within one year (or the company’s operating cycle if longer).

• Expected to be paid using current assets or by creating other current liabilities.
  

Long-term liabilities

Liabilities due after one year (or the company’s operating
cycle if longer)

Sales Taxes Payable

Amounts the retailer (seller) collects as sales taxes from customers when sales occur, and
currently owes to the government until remitted