《财务会计英语讲座》PPT课件.ppt

Chapter Chapter 1111 Current LiabilitiesCurrent Liabilities Accounting, 21st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc. Some of the action has been automated, so click the mouse when you see this lightning bolt in the lower right-hand corner of the screen. You can point and click anywhere on the screen. 1. Define and give examples of current liabilities. 2. Prepare journal entries for short-term notes payable and disclosure for the current portion of long-term debt. 3. Describe the accounting treatment for contingent liabilities and journalize entries for product warranties. 4. Determine employer liabilities for payroll, including liabilities arising from employee earnings and deductions from earnings. ObjectivesObjectives After studying this After studying this chapter, you should chapter, you should be able to:be able to: 5.Describe payroll accounting systems that use a payroll register, employee earnings record, and a general journal. 6.Journalize entries for employee fringe benefits, including vacation pay and pensions. 7.Use the quick ratio to analyze the ability of a business to pay its current liabilities. ObjectivesObjectives The Nature of Current LiabilitiesThe Nature of Current Liabilities Liabilities that are to be paid out of current assets and are due within a short time, usually within one year, are called current liabilities. Examples: Accounts payable Notes payable Unearned rent Taxes payable Wages payable Current portion of long term debt Short-Term Notes PayableShort-Term Notes Payable Aug. 1 Accounts PayableMurray Co.1 000 00 Issued a 90-day, 12% note on account. Notes Payable 1 000 00 A firm issues a 90-day, 12% note for $1,000, dated August 1, 2006 to Murray Co. for a $1,000 overdue account. Oct. 30 Notes Payable1 000 00 Interest Expense30 00 Issued a 90-day, 12% note on account. Cash 1 030 00 On October 30, when the note matures, the firm pays the $1,000 principal plus $30 interest ($1,000 x .12 x 90/360). Appears on the income statement as an “Other Expense.” Short-Term Notes PayableShort-Term Notes Payable DescriptionDebitCredit Bowden Co. (Borrower) Mdse. Inventory10,000 Accounts Payable 10,000 Coker Co. (Creditor) DescriptionDebitCredit Accounts Receivable10,000 Sales 10,000 Cost of Mdse. Sold7,500 Mdse. Inventory 7,500 May 31. Bowden Co. purchased merchandise on account from Coker Co., $10,000, 2/10, n/30. The merchandise cost Coker Co. $7,500. Short-Term Notes PayableShort-Term Notes Payable DescriptionDebitCredit Accounts Receivable10,000 Sales 10,000 Cost of Mdse. Sold7,500 Mdse. Inventory 7,500 Bowden Co. (Borrower)Coker Co. (Creditor) May 31. Bowden Co. issued a 60-day, 12% note for $10,000 to Coker on account. Accounts Payable10,000 Notes Payable 10,000 Notes Receivable10,000 Accounts Receivable 10,000 Mdse. Inventory10,000 Accounts Payable 10,000 Coker Co. (Creditor) DescriptionDebitCredit Accounts Receivable10,000 Sales 10,000 Cost of Mdse. Sold7,500 Mdse. Inventory 7,500 Short-Term Notes PayableShort-Term Notes Payable DescriptionDebitCredit Mdse. Inventory10,000 Accounts Payable 10,000 Accounts Receivable10,000 Sales 10,000 Cost of Mdse. Sold7,500 Mdse. Inventory 7,500 Bowden Co. (Borrower)Coker Co. (Creditor) DescriptionDebitCredit July 30. Bowden Co. paid Coker Co. the amount due on the note of May 31. Interest: $10,000 x 12% x 60/360 = $200. Accounts Payable10,000 Notes Payable 10,000 Notes Receivable10,000 Accounts Receivable 10,000 Notes Payable10,000 Interest Expense200 Cash10,200 Cash10,200 Interest Revenue 200 Notes Receivable 10,000 Short-Term Notes PayableShort-Term Notes Payable Discounted Notes PayableDiscounted Notes Payable Aug.10 Merchandise Inventory19 250 00 Interest Expense750 00 Issued a 90-day, note to Rock Co. discounted at 15%. Notes Payable 20 000 00 On August 10, Cary Company issues a $20,000, 90-day note to Rock Company in exchange for inventory. Rock discounts the note at 15%. Discount: $20,000 Discount: $20,000 x .15 x 90/360x .15 x 90/360 ProceedsProceeds Discount rateDiscount rate Discounted Notes PayableDiscounted Notes Payable Nov. 8 Notes Payable20 000 00 Paid note due. Cash 20 000 00 On November 8 the note is paid in full. Contingent Liabilities Product LiabilityProduct Liability On June 30, a company sells a product for $60,000 on which there is a 36-month warranty. Past experience indicates that repairs of defects cost 5% of the sales price over the warranty period. June 30 Product Warranty Expense3 000 00 Warranty expenses projected for June, 5% of $60,000. Product Warranty Liability 3 000 00 On August 16, a customer needed a defective part replaced. Cost to the company was $200 for the part. Aug.16 Product Warranty Payable200 00 Replaced defective part under warranty. Supplies 200 00 Product LiabilityProduct Liability Accounting Treatment of Accounting Treatment of Contingent LiabilitiesContingent Liabilities Likelihood of Occurring Measurement Accounting Treatment Probable EstimableRecord Liability Not Estimable Disclose Liability Disclose Liability Contingency Possible Payroll and Payroll Taxes Liability for Employee EarningsLiability for Employee Earnings 1. Good employee relations demand that payrolls be calculated accurately and paid as scheduled. 2. Payroll expenditures are subject to a variety of federal, state, and local taxes. 3. Total payroll expense (gross payroll plus payroll taxes) has a major impact on net income. Payroll is the amount paid to employees for services provided. Payrolls are important because- Gross Pay CalculationGross Pay Calculation John T. McGrath is employed by McDermott Supply Co. at the rate of $34 per hour, plus 1.5 times the normal hourly rate for hours over 40 per week. For the week ended December 27, McGrath worked 42 hours. Earnings at base rate (40 x $34)$1,360 Earnings at overtime rate (2 x $51) 102 Total earnings$1,462 FICA TaxFICA Tax Employers are required to withhold a portion of the earnings of each of the employees. The amount is matched by the employer and serves to provide the employee with social security and Medicare benefits upon retirement. Earnings subject to 6% social security tax ($100,000 $99,038) $962 Social security tax rate x 6% Social security tax$57.72 FICA Tax CalculationFICA Tax Calculation Assume that John T. McGraths annual earnings prior to the current period total $99,038. His current period earnings are $1,462. Earnings subject to 1.5% Medicare tax Current earnings $1,462 Medicare tax rate x 1.5% Medicare tax 21.93 Total FICA tax$79.65 Withholding Taxes, Other DeductionsWithholding Taxes, Other Deductions Employers are required to withhold federal income tax from each employee based on the withholding table and information provided by the employees W-4 form. Federal income tax and FICA tax must be withheld from the pay of each employee. Deductions for other purposes may be withheld by mutual agreement. Gross earnings for the week $1,462.00 Deductions: Social security tax tax$ 57.72 Medicare tax21.93 Federal income tax279.51 Retirement savings20.00 United Way 5.00 Total deductions 384.16 Net pay $1,077.84 John T. McGrath is single, has declared one John T. McGrath is single, has declared one withholding allowance, and had gross pay of withholding allowance, and had gross pay of $1,462 for the week ended December 27.$1,462 for the week ended December 27. Employee Net Pay CalculationEmployee Net Pay Calculation Responsibility for Tax Responsibility for Tax PaymentsPayments EMPLOYEEBUSINESS GOVERNMENTGOVERNMENT Social security tax Medicare tax Federal withholding tax Social security tax Medicare tax Federal unemployment compensation tax State unemployment compensation tax Federal IncomeFederal Income Personal income tax 46%46% Estate, gift, and other 8% Corporate income tax 8%8% FICA and FUTA 38%38% Federal OutlaysFederal Outlays Social security and Medicare 33% Interest on debt 8% Physical, human, and community development 13%13% Social programs 24%24% National defense 19% Law enforcement and general government 3%3% Payroll RegisterPayroll Register What is the purpose of a payroll register? Its a multicolumn form used to help assemble and summarize the data needed for each payroll period. Earnings: Regular$13,328.00 Overtime574.00 Total$13,902.00 Deductions: Social security tax$ 643.07 Medicare tax208.53 Federal income tax3,332.00 Retirement savings680.00 United Way470.00 Accounts receivable50.00 Total5,383.60 Net amount paid $ 8,518.40 Accounts debited: Sales Salaries Expense $11,122.00 Office Salaries Expense 2,780.00 Total (as above) $13,902.00 Payroll Register SummaryPayroll Register Summary Recording Employees EarningsRecording Employees Earnings Dec. 27 Sales Salaries Expense11 122 00 Office Salaries Expense2 780 00 Payroll for week ended December 27. Social Security Tax Payable 643 07 Medicare Tax Payable 208 53 Employees Federal Inc. Tax Pay. 3 332 00 Retirement Savings Ded. Payable 680 00 United Way Deductions Payable 470 00 Accounts ReceivableFred Elrod 50 00 Salaries Payable 8 518 40 Recording Employers Payroll TaxesRecording Employers Payroll Taxes Employer Taxes for the Week Ended December 27 Social security tax$ 643.07 Medicare tax208.53 State unemployment compensation tax (5.4% x $2,710)146.34 Federal unemployment compensation tax (0.8% x $2,710) 21.68 Total payroll tax expense$1,019.62 RecordingRecording Employers Payroll Taxes Employers Payroll Taxes Dec. 27 Payroll Tax Expense1 019 62 Payroll taxes for week ended December 27. Social Security Tax Payable 643 07 Medicare Tax Payable 208 53 State Unemployment Tax Payable 146 34 Federal Unemployment Tax Pay. 21 68 Wage and Tax Statements W-2W-2 Flow of Data in a Payroll SystemFlow of Data in a Payroll System Updated VariablesUpdated Variables (cumulative (cumulative earnings, taxes)earnings, taxes) Constant DataConstant Data (rates of pay,(rates of pay, tax, etc.)tax, etc.) Current PeriodsCurrent Periods VariablesVariables (hours worked)(hours worked) Payroll Checks and Statements Payroll Tax Returns Financial Statements PAYROLL PAYROLL REGISTER REGISTER GENERALGENERAL LEDGERLEDGER EMPLOYEESEMPLOYEES EARNINGSEARNINGS RECORDSRECORDS Employees Fringe Benefits Benefit Dollars as a Percent of Total 26% Vacation and sick pay 29%29% Medical 2%Other 18%18% Retirement and savings plans 25%25% Social security and Medicare Employees Fringe Benefits Vacation pay Vacation pay becomes the employers liability as the employee earns vacation rights. Pensions Cash payment to retired employees. Could be a defined contribution plan or a defined benefit plan Postretirement Benefits In addition to pension benefits, employees may earn rights to other postretirement benefits such as dental care, eye care, life insurance, etc. Amount is recorded by debiting Postretirement Benefits Expense and crediting cash. Pensions Defined contribution plan Under this plan, a fixed amount of money is invested