Current Liabilities & Payroll

Current Liabilities

Obligations that a company expects to pay within the next year or operating cycle, whichever is longer.

Certain Liabilities

Liabilities with a known payee, due date, and amount payable

Provisions (Uncertain Liabilities)

a liability exists, but the specific amount and timing of the settlement are uncertain

A provision must be recorded as a liability when:

- settlement is unlikely

- the amount can be reasonably estimated

Examples of provision liabilities

Product warranties, customer loyalty programs, and gift cards

Contingencies (uncertain liabilities)

A possible obligation resulting from past events (ex. lawsuit)

- significant uncertainty regarding the timing, amount and sometimes even the existence of a liability

Accounting procedure for contingencies

LIKELY BUT CANNOT BE ESTIMATED:

No liability is recorded on the balance sheet; however, it must be disclosed in the notes of the financial statement

UNLIKELY:

Generally not disclosed. However, if the event is substantial it should still be disclosed in the notes.

Accounting for warranties

When goods are sold with a warranty, the company knows a liability exists even though the specific units will fail, the timing of failure, and the ultimate payee remains unknown at the time of sale.

Matching Principle (Expense Recognition)

prescribes that a company must record its expenses incurred to generate the revenue

Payroll accounting

Costs paid by the employee (withheld by the employer) and costs paid directly by the employer

Employee Costs

Mandatory Deductions: required by law; personal income tax, CPP & EI -> determined using payroll deduction tables

Voluntary Deductions: charitable contributions, retirement savings & insurance premiums. Require written with feom the employee and aren't an expense to employer

Employer Costs

CPP: employer matches employees contribution (1:1)

EI: Employer must contribute 1.4x the employees contribution

Other: Workplace health, safety, and compensation premiums

Employee Benefits: paid absence/vacation & stat holidays; post-employment benefits for retired employees

Objectives of Internal Control for Payroll

- payments are made only to legitimate employees; payroll transactions are recorded accurately to comply with gov regulations

- implementation typically involves segregation of duties