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Transcript of Current Liabilities
They can be paid using current assets or can be created and they also appear on the balance sheet. What Are Current Liabilities? Definitely Determinable
Contingent Types Of Current Liabilities Operating Line of Credit
Sales Tax Payable
Current Maturities of Long-Term Debt Definitely Determined Liabilities A loan that allows company to write cheques up to a maximum value
Reported as a bank overdraft in current liabilities Operating Line of Credit Accounts/Notes Payable and Sales Tax Payable Are contracts written in the form of promissory notes(usually with interest)
Promissory notes are promises in the form of papers
Notes Payable used more often than Accounts Payable because it supplies legal evidence that is needed to collect debt Sales Taxes is a percentage of the price of goods sold to customers by a seller
The types of Sales Taxes in Canada currently are GST(Goods/Services Tax), PST(Provincial Sales Tax) and HST(Harmonized Sales Tax)
The seller collects the tax and remits to the government Payroll and Employee Benefits Salaries/Wages Payable is the amount that is owed to employee for that pay period
Payroll withholdings are federal and provincial income taxes(Canada Pension Plan Contributions and Employment Insurance Premiums)
Employees may ask for withholding's for charity, retirement, medical and other purposes
The witholdings that are charged from the employer are remitted to the government Unearned Revenues and Current Maturities
of Long-Term Debt Unearned Revenues are advances from customers that occur when the seller receives cash before the service is performed
Current Maturities of Long-Term Debt are long-term debt due within one year Estimated Liabilities These are contracts that exist, but the timing and amount is approximate, however the company is able to reasonably estimate the liability.
Examples include property taxes and warranty liabilities. Property Taxes Are accrued monthly
Amount is based on previous year's tax bill
When property taxes is accrued, the seller would adjust monthly, for the rest of the year Product Warranties Are guarantees issued to the purchaser for future replacement or repair in an allotted time frame
The cost of the repair or replacement is estimated using previous experience with the product
Are accrued with a debit to warranty expense and a credit to estimated warranty liability Contingent Liabilities Liabilities that may or not happen, based on future events
Are accrued by a debit to an expense account and a credit to a liability account if:
Contingency is likely
Amount can be estimated What it looks like The major types of current liabilities are listed separately
Usually bank loans, notes payable and accounts payable are listed first, then other liabilities If a business has employees, it must account for payrolls
Payroll Activities Include:
Preparing the Payroll
Paying the Payroll Payroll Accounting The objectives of internal accounting control concerning payroll are:
To make sure accounting records related to payrolls are accurate and reliable
To safe guard company assets from unauthorized payrolls Internal Controls of the Payroll Basically the HRD (Human Resource Department) is responsible for the following:
Posting any job openings
Screening and interviewing applicants
Authorizing any changes in the pay rates during employment
Terminations of employment
- In conclusion, the Human Resource Department plays a huge in role in business success as they are primarily involved in choosing the right employees for the right job at the right time. Hiring Employees Time plays a huge role in the success of a business, so companies rely on workers showing up at their agreed time
Therefore hourly employees are required to record their total time worked by “punching” a time clock (Time of arrival Time of departure)
He/she has a time card which automatically records the time for them Timekeeping The Payroll Department prepares the employees payroll on the basis of two sources of input:
1)Human Resource Department authorizations and;
2)Approved time cards Preparing and Paying the Payroll Employee Supervisors must:
Approve the hours of employees and sign the employee’s time card
Recognize and account for any overtime hours for an employee Paying the Payroll Preparing the Payroll The comptroller’s department is responsible for the payment of the payroll.
1.Payment by direct deposit, or by cheque, minimizes the risk of loss from theft.
2.All direct deposit lists and cheques must be signed by the comptroller and their distribution protected by the comptroller’s department. Determining the payroll involves calculating: gross earnings, payroll deductions, and net pay Determining and Paying the Payroll
and Payroll Deductions Three types of Gross Earnings
Bonuses Total wages are “hourly pay” x “numbers of hours worked”
Most companies are required to pay one and a half times the regular hourly pay if the employee does overtime Payroll Deductions Gross pay – amount actually received = PAYROLL DEDUCTIONS!
Most workplaces do have payroll deductions
There are mandatory deductions for any worker in any workplace such as CPP (Canadian Pension Plan) , Employment Insurance, as well as Personal Income Tax Mandatory Payroll Deduction = Voluntary deductions pertain to withholdings for charitable causes, retirement, and other purposes.
All voluntary payroll deductions should be authorized in writing by the employee.
Voluntary payroll deductions do not result in a payroll expense to the employer.
Net pay is determined by subtracting payroll deductions from gross earnings. Determining and Paying the Payroll CPP Employer Payroll Costs Employer must watch each employees contribution to CPP
Employers must commit 1.4 times to the employee's EI EI Employers must also pay a specified amount of their gross payroll to provide extra benefits to employees who are disabled or injured in the company. Workplace Health, Safety, and Compensation Canadian Pension Plan is offered to all employees
between ages 18 and 70 (excluding those in Quebec)
once they retire, they all as well must contribute to the CPP.
How much they contribute is usually determined by the government every January.
When the CPP was written employees paid 4.3% of pensionable A bit more on CPP, EI and Workplace compensation CPP Unlike CPP, EI is only paid by employees who aren't self-employed. EI is designed to provide a temporary income under the circumstance an employee is temporarily laid off, lose their job or on parental leave EI (Employment Insurance) Currently employees are required to pay a premium of 2.25%, on insured earnings. For example the EI premium for Mark Jordan on June 15 payroll is $11.25 ($500 * 2.25%) Provides supplemental benefits for workers who are injured or disabled on the job. This cost however is paid entirely by the employer.
Employee's are usually assessed at a rate ranging from 1% to 10% of their gross pay-roll.
Based on risk of injury to employee's past experience Workplace Health, Safety and Compensation Employers as well have other employee benefit costs
Two of the most important being paid absences and post employment benefit costs Additional Fringe Benefits Paid Absences sick pay benefits, paid vacations and paid holidays all fall under this. A liability must be estimated and accrued for future paid absences, however when the amount can't be estimated the potential liability should be disclosed. Most times, vacation pay is the only absence that is accrued, whereas the others are only disclosed in notes to the statements The typical entry to record employee costs in a payroll is a Debit to Salaries or Wages expense and a Credit to a variety of Liability accounts where as when paying the employee it is usually a Debit to the liability accounts and a Credit to Cash Recording Payroll Many companies use a payroll register to accumulate gross earnings to net pay Academy Company records its payroll for the week ending June 15, 2002 with the journal entry above. Office Salaries Expense ($5,200) and Wages Payable ($12,010) are debited in total for $17,210 in gross earnings. Specific liability accounts are credited for the deductions made during the pay period. Salaries and Wages Payable is credited for $9,885.34 in net earnings. The entry to record the payroll costs associated with the Academy Company payroll results in a debit to Employee Benefits Expense for $2,056.65, a credit to CPP Payable for $654.03 ($654.03 x 1) and a credit to EI Payable for $542.12 ($387.23 x 1.4). Assuming a worker’s compensation rate of 1 percent, the compensation payable liability would be for $172.10 ($17,210 x 1%). Vacation pay accrues at 4% and therefore the vacation payable will be 688.40 ($17,210 x 4%). Recording Payroll Costs (Employers perspective) The entry to record payment of the Academy Company payroll is a debit to Salaries and Wages Payable and a credit to Cash. RECORDING PAYMENT OF THE PAYROLL Unearned Revenues Current Maturities of Long-Term Debt Chapter Problem The following are selected transactions of Learnstream Company. Learnstream prepares financial statements quarterly and uses a perpetual inventory system Jan 12. Purchased merchandise on account from McCoy Company for $18,000, terms n/30
Feb 1. Issued a two month, 10%, $18,000 note to McCoy Company in payment of account. Interest is payable at maturity.
Mar 31. Accrued interest on the McCoy note.
Apr. 1 Paid the face value and interest on the McCoy note.
July 1. Purchased equipment from Scottie Equipment by paying $11, 000 in cash and signing a 10% three-month note for $25, 000. Interest is payable at maturity.
Sept 30. Accrued Interest on the Scottie note
Oct 1. Paid the Face value and interest on the Scottie note
Dec 1. Borrowed $20, 000 from Toronto-Dominion Bank by issuing a 9%, three month note. Interest is payable monthly, on the first of each month.
Dec 31. Recognized interest expense on the Toronto- Dominion Bank note Instructions: (a) Prepare journal entries for the above transactions and events (c) Show the balance sheet presentation of Notes Payable, Interest Payable and Interest Expense. (d) What is the total interest expense for the year? a) b) Learn Stream Company
Balance Sheet (Partial)
December 31, 2003 Current Liabilities
Interest Payable $20,000 $150 $20,150 The interest expense equals “Accounts Payable and Accrued Liabilities” you will have to refer back to the general journal to add up all the interest expense then subtract all the interest that was paid off. On December 31, you will end up with $450 of interest expense. d) P11-2A (pg 548)