BACC 211 Ch. 9: Accounting for Current Liabilities

Key terms

Contingent 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.

Deferred 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 depository bank

Bank authorized to accept deposits of amounts payable to the federal government.

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.

FICA taxes (Federal Insurance Contributions Act)

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.

Form 940

IRS form used to report an employer’s federal unemployment taxes (FUTA) on an annual filing basis.

Form 941

IRS form filed to report FICA taxes owed and remitted.

Form W-2

Annual report by an employer to each employee showing the employee’s wages subject to FICA and federal income taxes along with amounts withheld.

Form W-4

Withholding allowance certificate, filed with the employer, identifying the number of withholding allowances claimed.

Gross pay

Total compensation earned by an employee.

Known liabilities

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.

Merit rating

Rating assigned to an employer by a state based on the employer’s record of employment.

Net pay

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

Payroll bank account

Bank account used solely for paying employees; each pay period, an amount equal to the total employees’ net pay is deposited in it and the payroll checks are drawn on it.

Payroll deductions

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

Payroll register

Record for a pay period that shows the pay period dates, regular and overtime hours worked, gross pay, net pay, and deductions.

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.

Wage bracket withholding table

Table of the amounts of income tax withheld from employees’ wages.

Warranty

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