Chapter 3: tracking expenses, liabilities, and equity

sole proprietorship

owned by one person and unlimited liabilty protection

partnership

owned by two or more

LLC

• Owned by one or more 

• Owners are not personally liable

c corp

• Owned by one or more shareholders

• Owners are not personally liable

• must have a board of directors and strict rules for operating

s corp

owned by up to 100 shareholders and owners are not personally liable

nonprofit corporations

Founded by one or more, but no single person or group owns a nonprofit, as they are considered public organizations governed

current liabilities

debts that a business must repay within a short period, usually within a year

long-term liabilities

have a longer repayment period and are not considered current liabilities

gross wages

the total amount earned before any deductions

net pay

amount of income an employee receives after deductions

FICA

taxes going into medicare and social security. Paid by both employees and employers

FUTA

A payroll tax that only the employer pays.

SUTA

A tax that only the employer pays that funds state-administered unemployment programs. 

SDI

only used in some states, it is a payroll tax that funds employees financially if they are injured on the job.

taxable wages

earnings from which an employer must withold taxes and does not include non-taxable wages

wage garnishment

legal procedure in which a persons earnings are required by court to be withheld for the payment of debt

Non-exempt

classification indicates that an employee is eligible for overtime pay benefits once they have worked over 40 hours per week (they are __ from overtime pay) (hourly employee)

Exempt

classification indicates that an employee is not eligible for overtime pay (they are __ from overtime pay). (salaried employee)

W4

ensures that taxes are being withheld at a rate that the employee chooses, filled by both the new employee

W2

given to the employees at the end of the year with a summary of their year’s earnings and taxes. Used to complete tax returns

941

• Businesses file this form quarterly.

• It's used to report payroll information to the IRS.

• It allows employers to pay Social Security and Medicare taxes for the previous quarter.

944

• It allows these employers to report and pay their employment taxes just once a year, simplifying the process. 

W9

• used when hiring independent contractors.

• Filled out by the independent contractor, not the employer.

1099 NEC

displays total annual earnings for the independent contractor

is sent to independent contractors who were paid at least $600 within a calendar year.

YTD

used to show the accumulated withholdings, taxes, or accured compensation on a paycheck

pay or check date

the date the pay is given to the employee

pay period

timeframe in which a business runs its payroll

payroll

the total amount of wages that a company pays its employees

preferred stock

share that guarantees cumulative dividends and no voting rights

common stock

represents ownership in a company through an owner's or stockholder's initial investment into the company

treasury stock

a common stock a company purchased back from its investors

payroll register

shows the gross earnings, deduction, net pay, and taxable earnings for a specific pay period

what effects does payroll have on the accounting equation

increases liabilities, decrease equity