Accounting 201 ACCT 201
U of L
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This 3 page Class Notes was uploaded by George Maxwell Miller on Wednesday March 23, 2016. The Class Notes belongs to ACCT 201 at University of Louisville taught by Johnston in Spring 2016. Since its upload, it has received 9 views. For similar materials see Intro to Accounting 1 in Accounting at University of Louisville.
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Date Created: 03/23/16
Acct. for current liabilities 03/21/2016 ▯ Definition: Current obligation to pay or to provide a service ▯ Current liabilities- o Expected to be paid within one year of the operating cycle, whichever is longer. ▯ Long-term liabilities- o NOT expected to be paid within one year or the company’s operating cycle. ▯ ▯ ▯ ▯ Uncertainty of Liabilities- Whom to pay, when to pay, and/or how much to pay ▯ ▯ Known liabilities- Accounts payable: amount own to vendors when paid on credit Sales taxes payable: When you purchase something, the company is required to withhold sales tax from the customer in order to give to the required authority. Unearned revenue: Where a company receives money before a service has been provided ▯ ▯ Multi-period known liabilities- includes unearned revenue and notes payable Unearned revenues from magazine subscriptions often cover more than one accounting period. A portion of the earned revenue is recognized each period and the unearned revenue account is reduced. Notes payable often extend over more than one accounting period. A three-year note would be classified as a current liability for one year and a long-term liability for two years. ▯ ▯ ▯ PAY-ROLL LIABILITIES ▯ ▯ Definition: Employers incur expenses and liabilities from having employees ▯ ▯ Employee Payroll Deductions ▯ Gross pay = Before deductions Net pay = After deductions ▯ Deductions: federal income tax, State and local income tax, voluntary deductions, FICA taxes (Medicare), FICA taxes (Social Security) ▯ ▯ Employee FICA taxes ▯ FICA-Federal Insurance Contributions Act Employers must pay withheld taxes to the Internal Revenue Service (IRS). ▯ ▯ Employee Income Tax ▯ Employers must pay the taxes withheld from employees’ gross pay to the appropriate government agency Amounts withheld depend on the employees’ earnings, tax rates, and number of withholding allowances. ▯ ▯ Employee Voluntary Deductions ▯ Employers owe voluntary amounts withheld from employees’ gross pay to the designated agency. Examples include union dues, savings accounts, pension contributions, insurance premiums, and charities. ▯ ▯ ▯ PAY-ROLL EXPENSES ▯ Employers pay amounts equal to that withheld from the employee’s gross pay o If you are self-employed, you pay deductions from your gross pay AND the payroll expenses ▯ ▯ ▯ On august 23, Brady company asks McGraw to accept $100 cash and a 60-day, 12% $500 note to replace its existing $600 account payable Accounts payable—McGraw 600 o Cash-- 100 o Notes payable—McGraw 500 ▯ ▯ Paid note on October 22, Brady pays note plus interest to McGraw Notes payable—McGraw 100 Interest expense 10 o Cash ? ▯ ▯ ▯ Warranty liabilities Seller’s obligation to replace or correct a product or serve that fails to perform as expected within a specified period. Complies with full disclosure and matching principles. o There would be an adjusting journal entry at the end of the period and is then written of ▯ ▯ Contingent liabilities Potential obligation that depends upon future events that happen based on transactions from the past (worker slips and gets hurt, car leaks oil after oil change, etc.) Cannot be foreseen but can most certainly be avoided ▯ ▯ Potential legal claims Potential claim is recorded if the amount can be reasonably estimated and payment for damages is probable. ▯ ▯ Debt guarantees The guarantor usually discloses the guarantee in its financial statement notes. If it is probable that the debtor will default, the guarantor should record and report the guarantee as a liability. ▯ ▯