Accounting for Current Liabilities

Flashcards covering key concepts related to accounting for current liabilities.

What are current liabilities?

Obligations due within one year or the company’s operating cycle if longer.

What are long-term liabilities?

Obligations due after one year or the company’s operating cycle if longer.

Give examples of known liabilities.

Accounts Payable, Sales Taxes, Unearned Revenues, Notes Payable, Payroll Obligations, Multi-Period Known Liabilities

How do you calculate sales taxes payable?

Sales Tax = (Sales amount) x (Sales tax percentage)

How do you calculate unearned revenue when a portion is earned?

Earned Revenue = (Total Unearned Revenue) x (Portion Earned)

What is a short-term note payable?

A written promise to pay a specified amount on a stated future date within one year. Most notes bear interest and may arise from overdue accounts payable or borrowing from a bank.

What are payroll liabilities?

Liabilities from salaries and wages, employee benefits, and payroll taxes levied on the employer.

What are some common employee payroll deductions?

Federal Income Tax, State and Local Income Taxes, Voluntary Deductions, FICA Taxes (Medicare), and FICA Taxes (Social Security).

What are FICA taxes?

Federal Insurance Contributions Act taxes, including Social Security and Medicare taxes.

What are examples of employee voluntary deductions?

Charitable giving, medical and life insurance premiums, pension contributions, and union dues.

What payroll taxes are employers responsible for?

FICA–Social Security Taxes, FICA–Medicare Taxes, Federal and State Unemployment Taxes

What is FUTA?

Federal Unemployment Tax, which is 6.0% on the first $7,000 of wages paid to each employee, with a credit up to 5.4% given for SUTA paid.

What is SUTA?

State Unemployment Tax, such as 5.4% on the first $7,000 of wages paid to each employee.

Give examples of multi-period known liabilities.

Unearned Revenues and Notes Payable

What is an estimated liability?

A known obligation of an uncertain amount that can be reasonably estimated.

Give examples of estimated liabilities.

Pensions, health care, vacation pay, and warranties.

What is a warranty liability?

A seller’s obligation to replace or fix a product (or service) that fails to perform as expected within a specified period.

What is a contingent liability?

A potential obligation that depends on a future event arising from a past transaction.

What are uncertainties that are NOT contingencies?

Uncertainties from future events that do not arise from past transactions. These are not disclosed.

What is the times interest earned ratio?

A measure of a company's ability to meet its debt obligations based on its current income. It is calculated as Income before interest and taxes divided by Interest expense.

What are some examples of payroll reports?

IRS form 941, IRS form 940, and W2.

What are some examples of payroll records?

Payroll register, payroll checks, and employee earnings report.