CH 11: Current Liabilities and Payroll Accounting

Contingient Liability

Obligation to make a future payment if, and only if, an uncertain future event occurs.

Current liabilities

Obligations due to be paid or settled within one year or the company’s operating cycle, whichever is longer.

Current portion of long term debt

Portion of long-term debt due within one year or the operating cycle, whichever is longer; reported under current liabilities.

Deffered income tax liability

Corporate income taxes that are deferred until future years because of temporary differences between GAAP and tax rules.

Employee benefits

Additional compensation paid to or on behalf of employees, such as premiums for medical, dental, life, and disability insurance, and contributions to pension plans.

Employee earnings report

Record of an employee’s net pay, gross pay, deductions, and year-to-date payroll information.

Estimated liability

Obligation of an uncertain amount that can be reasonably estimated.

Federal income taxes withheld

Amount of tax that an employer is required to withhold from an employee’s paycheck; amount is determined by the number of exemptions that an employee claims and the income that is paid

Federal Insurance Contributions Act (FICA) taxes

Taxes assessed on both employers and employees; for Social Security and Medicare programs.

Federal Unemployment Tax Act (FUTA)

Payroll taxes on employers assessed by the federal government to support its unemployment insurance program.

Gross pay

Total compensation earned by an employee.

Known liabililities

Obligations of a company with little uncertainty; set by agreements, contracts, or laws; also called definitely determinable liabilities.

Long term liabilities

Obligations not due to be paid within one year or the operating cycle, whichever is longer.

Net pay

Gross pay less all deductions; also called take-home pay.

Payroll deductions

Amounts withheld from an employee’s gross pay; also called withholdings.

Short term note payable

Current obligation in the form of a written promissory note

State Unemployment Tax Act (SUTA)

State payroll taxes on employers to support its unemployment programs.

Times interest earned

Ratio of income before interest expense (and any income taxes) divided by interest expense; reflects risk of covering interest commitments when income varies.

Warranty

Agreement that obligates the seller to correct or replace a product or service when it fails to perform properly within a specified period.