ACCT20200 Chapter Notes - Chapter 8: Payroll Tax, Accounts Payable, Promissory Note
Ch.8: Current Liabilities
● Liability: present responsibility to sacrifice assets in the future due to a transaction or other event
that happened in the past.
● Current liabilities: are payable within one year from the balance sheet date (can also be defined
by the length of the company’s operating cycle)
● Long-term liabilities: are payable in more than one year
● Notes payable: written promises to repay amounts borrowed plus interest.(short-term debt)
○ 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝐴𝑛𝑛𝑢𝑎𝑙 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑟𝑎𝑡𝑒 × 𝑓𝑟𝑎𝑐𝑡𝑖𝑜𝑛 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟
○ Have to record interest incurred but not paid as interest payable
○ Interest expense it recorded in the period it was incurred rather than the period it was paid
● Line of credit: informal agreement that allows a company to borrow up to a prearranged limit
without having to follow formal loan procedures and paperwork.
● Commercial paper: borrowing from another company rather than a bank
● Accounts payable: amounts the company owed to suppliers of merchandise or services that it has
bought on credit.
● Things that withhold salary or incurred by the employer:
○ Federal and state income taxes
○ SSN and Medicare (employer portion too)
○ Health, dental, disability and life insurance premiums (employer contributions)
○ Employee investments to retirement or savings plans (employer contributions)
● FICA taxes: tax withheld from employees’ paychecks and matched by employers for Social
Security and Medicare
○ FICA tax payable = withheld income x FICA tax rate
● Unemployment taxes: a tax to cover federal and state unemployment costs paid by the employer
on behalf of the employees
● Fringe benefits: additional employee benefits paid for by the employer
● Recording salaries expense, withholdings and salaries payable:
○ Salaries expense is debited for the full amount
○ credit : IT payable, FICA payable and Salaries payable
○ Salaries payable = Salaries expense - (IT + FICA)
● Recording employer-provided fringe benefits:
○ Debit salaries expense for totable fringe benefits amount
○ Credit accounts payable for each benefit
● Payroll tax expense recording: for employer payroll taxes
