ACC 222 — Current Liabilities Vocabulary

This set of vocabulary flashcards covers essential terms related to current liabilities, payroll, and contingent obligations as discussed in the ACC 222 lecture notes.

Contingent Liability

A potential liability that depends on a future event — it is only recorded if the loss is probable and the amount can be reasonably estimated. Examples include pending lawsuits and product warranties.

Current Liability

A debt or obligation that is due to be paid within one year or within the company's operating cycle, whichever is longer. Examples include accounts payable, wages payable, and short-term notes payable.

Current Portion of Notes Payable

The part of a long-term note payable that is due within the next 12 months. It is reclassified from long-term liability to current liability on the balance sheet.

Federal Insurance Contributions Act (FICA)

A U.S. federal law that requires both employees and employers to contribute to Social Security and Medicare. The tax is split equally between the employee (withheld from pay) and the employer (matched).

Gross Pay

The total amount an employee earns before any deductions — including regular wages or salary, overtime, and bonuses.

Income Tax Withholding

The amount of federal (and sometimes state) income tax that an employer deducts from an employee's paycheck and sends directly to the government on the employee's behalf.

Liabilities

Present obligations of a company arising from past transactions or events that require the company to transfer assets or provide services in the future. Found on the right side of the balance sheet.

Long-term Liability

An obligation that is not due within the next year or operating cycle. Examples include bonds payable, long-term notes payable, and lease obligations.

Net Pay

The amount an employee actually takes home after all deductions — such as taxes, FICA contributions, and other withholdings — have been subtracted from gross pay. Also called take-home pay.

Payroll Register

A detailed record that summarizes all payroll information for each pay period, including each employee's gross pay, deductions, net pay, and employer tax obligations.

Short-term Notes Payable

A written promise to pay a specific amount within one year. It is a current liability and typically includes interest. More formal than accounts payable.

Social Security (FICA) Tax

A payroll tax under FICA that funds the Social Security program. Both the employee and employer each pay a set percentage ($6.2\%$) on the employee's wages up to an annual wage cap.

Times-Interest-Earned Ratio

A ratio that measures a company's ability to cover its interest expense with its operating income. Formula: $\text{Income from Operations} \div \text{Interest Expense}$. A higher ratio means less risk of defaulting on debt.

Unemployment Compensation Taxes

Payroll taxes paid by employers (and sometimes employees) to fund unemployment benefits for workers who lose their jobs. Includes federal (FUTA) and state (SUTA) unemployment taxes.

Warranty

A promise made by a seller to repair or replace a product if it is defective within a specified period. It creates a contingent liability — the estimated future cost must be recorded as an expense in the same period as the sale (matching principle).