Accounting for Current Liabilities and Payroll

going concern assumption

a company that is financially stable enough to meet its obligations and continue its business for the foreseeable future

issuer

a legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or domestic or foreign governments.

note payable

a written promise to pay a specific amount of money at a specified future date or on demand

contingent liability

is a liability that may occur depending on the outcome of an uncertain future event

general uncertainties

where there is a lack of clarity or certainty regarding financial transactions, events, or conditions. These uncertainties can arise due to various factors, such as incomplete information, complex business transactions, changes in regulations or standards, and subjective judgments.

warranties

the cost that a company anticipates incurring for the replacement or repair of products customers purchase.

employee

It includes all aspects of paying and calculating employee compensation

independent contractor

a self-employed person or entity contracted to perform work for—or provide services to—another entity as a non-employee

wages

the remuneration paid to an employee, usually on an hourly, daily, or piece rate basis

salaries

a fixed amount of money or compensation paid to an employee by an employer in return for work performed

gross earnings

any income without any deductions

Employees Withholding Allowance Certificate, Form W-4

tells the employer the amount of tax to withhold from an employee's paycheck based on their marital status, number of allowances and dependents, and other factors.

Wage and Tax Statement, Form W-2

the document an employer is required to send to each employee and the Internal Revenue Service (IRS) at the end of the year ( gross earnings for the year)

Employer’s Quarterly Federal Tax Return, Form 941

the form your business uses to report income taxes and payroll taxes withheld from your employees' wages

Social Security

provides qualified individuals with old age, survivor’s, and disability insurance (OASDI); Medicare

is the revenue collected by the U.S. government to finance the Social Security program

Medicare

taxes fund hospital, hospice, and nursing home expenses for elderly and disabled individuals

Federal Unemployment Tax Act (FUTA)

it is a federal law that requires employers to pay an additional amount of tax on top of the federal income tax and other payroll taxes.

current (short-term) asset

A asset equals cash or an asset that will be converted into cash within a year

operating cycle

defined as the average time it takes a business to convert cash to inventory, inventory to accounts receivable, and accounts receivable back to cash.

current (short-term) liabilities

debts a company must pay within a normal operating cycle, usually less than 12 months

classified balance sheets

assets and liabilities are categorized in order of liquidity

Liquidity

the ease with which you can convert an asset to cash, without affecting its market value. In other words, it's a measure of the ability of debtors to pay their debts when they become due

Solvency

the ability of a company to meet its long-term debtsand other financial obligations

current ratio

a comparison of a company's current assets to current liabilities that can be used to find its liquidity

interest-bearing notes

a stated rate of interest that is payable in addition to the face value of the note

discount note

investors purchase them at a cost lower than the note's face value

discount

the deduction in the price of the goods sold

principal

the original sum borrowed in a loan or put into an investment

proceeds

the cash received from the sale of goods or assets during a particular period. The total is obtained by multiplying the quantities sold by the selling price per unit.

contra liability account

one that is debited for the explicit purpose of offsetting a credit to another liability account

Discount on Notes Payable

the accounting treatment used when a company issues a promissory note at a price lower than its face value

amortizing

the practice of spreading an intangible asset's cost over that asset's useful life.

Debit

: An entry that increases assets or expenses and decreases liabilities, equity, or income. Debits are recorded on the left side of an accounting ledger.

Credit

An entry that increases liabilities, equity, or income and decreases assets or expenses. Credits are recorded on the right side of an accounting ledger.