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Accounts PayableAmounts owed for productsand services purchased on
account
Short-Term Notes PayableCommon form of financing;
company incurs interest expense
Sales Tax PayableTax levied by state on retail
sales; company collects from customer and remits to
government
3
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Accrued ExpensesExpense incurred, but not yet paid; often an
adjusting entry. Examples: salaries & interest payable
Current portion of Long-Term Notes PayablePrincipal portion of long-term debt due
in the next year
Unearned revenuesCustomers make payment before receiving
product or service
4
5
GENERAL JOURNALDATE DESCRIPTION DEBIT CREDIT
2011
3 1 Equipment 16,000
Notes payable 16,000
Purchase equipment by signing a note payable
12 31
Interest expense 1,200
Interest payable 1,200
Accrued interest on note payable
$16,000 x 9% x 10/12$16,000 x 9% x 10/12
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6
GENERAL JOURNALDATE DESCRIPTION DEBIT CREDIT
2012
3 1 Interest payable 1,200
Interest expense 240
Notes payable 16,000
Cash 17,440
To record payment of note and interest
$16,000 x 9% x 2/12$16,000 x 9% x 2/12
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Copyright (c) 2009 Prentice Hall. All rights reserved.
Companies guarantee products through warranty agreements
Warranty expense is estimated in same period as sale of product◦Matching principle
JOURNAL
Date Accounts Debit Credit
Warranty Expense $$$$
Estimated Warranty Payable $$$$
8
Potential liability Depends on a future event Accounting treatment depends on likelihood
that the future event will create a liability:
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Likelihood of Loss
How to Report
Remote No disclosure required
Reasonably possible
Describe in notes to the financial statements
Probable Record an expense and liability based on estimated amounts
10
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Salary Pay stated at annual, monthly, or weekly rate
Wages Pay stated at an hourly rate
Commission
Pay stated as percentage of sales amount
Bonus Pay over and above base salary
Benefits Extra compensation not paid in cash, such as health insurance or retirement contributions
Straight time◦ base rate paid for a set number of hours
Overtime◦ additional time worked for which employees
receive a higher rate ◦ usually 1.5 times the straight time rate
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15
Gross payGross pay
Required deductionsRequired
deductions
Optional deductions
Optional deductions
Net payNet pay
Income & Social
security taxes
Income & Social
security taxes
Insurance, retirement
plans, charitable
contributions
Insurance, retirement
plans, charitable
contributions
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Government requires employers to deduct income tax from employees’ gross pay
Amount depends on:◦ Gross pay◦ The number of withholding allowances employee
claims on Form W-4 Each allowance lowers amount of tax withheld Number of allowances depends on marital status and
number of children and/or dependents
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Two components:◦ Old age, survivors’ and disability insurance
(OASDI) 6.2% of pay up to a wage base which increases
each In 2008, wage base = $102,000
◦ Health insurance (Medicare) 1.45% of pay with no maximum wage base
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In addition to employee withholdings, employers pay at least three taxes based on payroll:◦ Social Security (FICA) tax
Employer matches amount withheld from employees’ pay
◦ State unemployment compensation tax (SUTA) In many states, 5.4% of first $7,000 paid to each
employee◦ Federal unemployment compensation tax
Frequently, 0.8% of the first $7,000 paid to each employee
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21
GENERAL JOURNALDATE DESCRIPTION DEBIT CREDIT
Salary expense
Employee income tax payable
FICA tax payable
Payable to health insurance
Payable to United Way
Salary payable
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22
GENERAL JOURNALDATE DESCRIPTION DEBIT CREDIT
Health insurance expense
Life insurance expense
Retirement plan expense
Employee benefits payable
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23
GENERAL JOURNALDATE DESCRIPTION DEBIT CREDIT
Payroll tax expense
FICA tax payable
Federal unemployment tax payable
State unemployment tax payable
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Hours
Pay rate
Total
40 $14 $560
22 $21 462
62 $1,022
24
GENERAL JOURNALDATE DESCRIPTION DEBIT CREDIT
Salary expense 1,022
Employee income tax payable 73
FICA tax payable 78
Payable to United Fund 10
Salary payable 861
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Controls for efficiency
Use of two payroll bank accounts
Use of computer processing
Controls to Safeguard Payroll
Disbursements Hiring and firing
separate from accounting
Use of photo IDs & time clocks
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