Chapter 11
Net Pay
Gross Pay minus all deduction. The amount of compensation that the employee actually takes home.
Optional Deductions
Insurance premiums, retirement plan contributions, charitable contributions, and other amounts that are withheld at the employee's request.
Gross Pay
The total amount of salary, wages, commissions, and any other employee compensation before taxes and other deductions.
Payroll Deductions fall into two categories:
1. Required Deductions 2. Optional Deductions
Long-Term Liability
A liability that does not need to be paid within one year or within the entity's operation cycle, whichever is longer.
Current Liability
A liability that must be paid with cash or with gods and services within one year or within the entity's operation cycle if the cycle is longer than a year.
Benefits
Are extra compensation, or items that are not paid directly to the employee. Benefits cover health, life, and disability insurance. The employer pays the insurance company, which then provides coverage for the employee. Another type of benefit, retirement, sets aside money for the employee for his/her/their future retirement.
Liabilities
Debts that are owed to creditors.
Sales Tax Payable: Journal Entry December's taxable sales for Smart Touch Learning totaled $10,000. The company collected an additional 6% sales tax, which would equal $600 ($10,000 x 0.06). The accounting clerk would record that month's cash sales as follows: (On Dec. 31) To pay the tax, the company debits Sales Tax Payable and credits Cash. (Jan. 20)
Dec 31 Cash 10,600│ Sales Revenue │10,000 Sales Tax Payable ($10,000 x 0.06) │600 (To record cash sales and the related sales tax) Jan 20 Sales Tax Payable 600│ Cash │600 (To record cash payment for sales tax payable)
Required Deductions
Employee federal and state income tax, Social Security tax and other deductions required by federal, state, or local laws. For example, employees pay their income tax and Social Security tax through payroll deductions.
Sales Tax Payable
Most states assess sales tax on retail sales. Retailers collect the sales tax in addition to the price of the item sold. Sales Tax Payable is a current liability because the retailer must pay the state in less than a year. Sales tax is usually calculated as a percentage of the amount of the sale.
Wages
Pay amounts stated at an hourly rate Example: $15 per hour
Bonus
Pay over and above base salary (or wage or commission). A bonus is usually paid for exceptional performance -- in a single amount at year end.
Commission
Pay stated as a percentage of a sale amount. Example: A retailer who earns 5% commission on a sale earns $5,000 on a $100,000 sale. [$100,000 x 0.05]
Salary
Pay stated at an annual, monthly, or weekly rate Examples: $62,400 per year, $5,200 per month, or $1,200 per week.
Current Portion of Notes Payable
The amount of the principal that is payable within one year.
Income Tax Payable
The federal government and many state governments require corporations to pay income tax on their net income. Federal income taxes are calculated on a corporate tax return, (referred to as a Form 1120). The amount of taxes that the corporation owes but has not yet paid is classified as Income Tax Payable and is reported as a current liability on the balance sheet.
Employee Payroll Withholding Deductions
The federal government, most states, and many municipalities require employers to deduct taxes from employee paychecks. Insurance companies and investment companies may also get some of the employee's gross pay. Amounts withheld from paychecks are called withholding deductions. Payroll withholding deductions are the difference between gross pay and take-home pay (Net Pay). These deductions are withheld from paychecks and sent directly to the government, to insurance companies, or to other entities.
