Chapter 9: Accounting for Current Liabilities

Employee Benefits

Additional compensation paid to or on behalf of employees, such as premiums for medical, dental, vacation pay, warranties, life, and disability insurance, and contributions to pension plans.

Warranty

Agreement that obligates the seller to correct or replace a product or service when it fails to perform properly within a specified period. Ex: Most new cars, for instance, are sold with a warranty covering parts for a specified period of time.

Payroll Deductions

Amounts withheld from an employee's gross pay; also called withholding's.

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.

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.

Federal Depository Bank

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

Deferred Income Tax Liability

Corporation income taxes that are deferred until future years because of temporary differences between GAAP and tax rules.

Net Pay

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

Form 941

IRS form filed to report FICA taxes owed and remitted.

Estimated Liability

Obligation of an uncertain amount that can be reasonably estimated. Ex: Employee benefits such as pensions, health care and vacation pay, and warranties offered by a seller.

Contingent Liability

Obligation to make a future payment if, and only if, an uncertain future event occurs.

Known Liabilities

Obligations of a company with little uncertainty; set by agreements, contracts, or laws. The company knows who to pay, how much to pay them, and when the payment is due.

Federal Unemployment Taxes (FUTA)

Payroll taxes on employers assessed by the federal government to support its unemployment insurance program.

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.

Form 940

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

Merit Rating

Rating assigned to an employer by a state based on the employer's record of employment. That reflects a company's stability or instability in employing workers.

Payroll Register

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

Employee Earnings Report

Record of an employee's net pay, gross pay, deductions, and year-to-date payroll information.

State Unemployment Taxes (SUTA)

State payroll taxes on employers to support its unemployment programs.

Wage Bracket Withholding Table

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

Federal Insurance Contributions Act (FICA) Taxes

Taxes assessed on both employers and employees; for Social Security and Medicare programs.

Form W-4

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

Current Liability

a company's debts or obligations that are due within one year. Appear on the balance sheet.

Unearned Revenue

a liability account that reports amounts received in advance of providing goods or services.

Promissory Note

a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.

Short-Term Note Payable

a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. Current obligation in the form of a written promissory note.

Long Term Liability

are liabilities with a future benefit over 1 year; such as notes payable that mature longer than one year. Shown on the balance sheet.

Sales Taxes Payable

is a liability account in which is stored the aggregate amount of sales taxes that a business has collected from customers on behalf of a governing tax authority. Not an expense.

Gross Pay

is the total compensation an employee earns including wages, salaries, commissions, bonuses, and any compensation earned before deductions such as taxes.

Accounts Payable

money owed by a company to its creditors.

Liability

profitable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. ~A past transaction or event ~A present obligation ~A future payment of assets or services