Financial and Managerial Accounting

Slides:



Advertisements
Similar presentations
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 Purchasing/ Human Resources/ Payment Process: Recording.
Advertisements

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved
Current Liabilities and Payroll
CHAPTER 10: REPORTING AND ANALYZING LIABILITIES
McGraw-Hill /Irwin© 2009 The McGraw-Hill Companies, Inc. CURRENT LIABILITIES AND CONTINGENCIES Chapter 13.
Chapter 9 Current Liabilities
7–1 McQuaig Bille 1 College Accounting 10 th Edition McQuaig Bille Nobles © 2011 Cengage Learning PowerPoint presented by Douglas Cloud Professor Emeritus.
C Learning Objectives 1.The Nature of Current Liabilities 2.Short-Term Notes Payable 3.Contingent Liabilities 4.Payroll and Payroll Taxes 5.Accounting.
CPA, MBA BY RACHELLE AGATHA, CPA, MBA Current Liabilities & Payroll Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac.
After studying this chapter, you should be able to:
Click to edit Master title style Liabilities that are to be paid out of current assets and are due within a short time, usually within one year,
10 Current Liabilities and Payroll Liabilities that are to be paid out of current assets and are due within a short time, usually within one year,
Principles of Financial Accounting, 11e
Appendix on Payroll Accounting
© The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Slide Reporting and Analyzing Current Liabilities.
Current Liabilities and Payroll
The Matching Concept and the Adjusting Process
Chapter 7 Cash Accounting, 21st Edition Warren Reeve Fess
Financial and Managerial Accounting Wild, Shaw, and Chiappetta Fifth Edition Wild, Shaw, and Chiappetta Fifth Edition McGraw-Hill/Irwin Copyright © 2013.
@ 2012, Cengage Learning Current Liabilities and Payroll LO 1a – Recording Notes Payable.
Payroll Liabilities & Tax Records Chapter 13
C Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University Current Liabilities and Payroll Chapter 10.
Financial Accounting Fundamentals John J. Wild Third Edition John J. Wild Third Edition McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies,
C Learning Objectives Power Notes 1.The Nature of Current Liabilities 2.Short-Term Notes Payable 3.Contingent Liabilities 4.Payroll and Payroll Taxes.
Chapter 10. Account for current liabilities of known amount.
11 Current Liabilities and Payroll Financial Accounting 14e
Current Liabilities and Payroll
Current Liabilities and Payroll
Click to edit Master title style Current Liabilities and Payroll.
1 Chapter 9 Current Liabilities, Contingencies, and Payroll Financial Accounting 4e by Porter and Norton.
©2002 Prentice Hall, Inc. Business Publishing Accounting, 5/E Horngren/Harrison/Bamber Current Liabilities and Payroll Chapter 11.
1 © Copyright 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star Logo, and South-Western are trademarks used herein under.
Accounting Principles Using Excel for Success PowerPoint Presentation by: Douglas Cloud, Professor Emeritus Accounting, Pepperdine University © 2011 Cengage.
Student Version o Repetition is an important component, a key part of learning. In memory, the more times patterns of thought are repeated, the more likely.
10 Current Liabilities and Payroll Student Version.
Chapter 17 Financial Statement Analysis Accounting, 21 st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting.
Chapter 11 Current Liabilities and Payroll. Learning Objectives 1.Account for current liabilities of known amount 2.Calculate and journalize basic payroll.
Chapter 11 Current Liabilities and Payroll © 2009 The McGraw-Hill Companies, Inc.
Bonds Payable and Investments in Bonds
Accounting for Current Liabilities Chapter 9 Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior.
Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned,
Statement of Cash Flows
© The McGraw-Hill Companies, Inc., 2005 McGraw-Hill/Irwin Current Liabilities and Payroll Accounting Chapter 11.
CHAPTER 12 FINANCIAL MANAGEMENT Financial Planning FINANCIAL PLANNING Ongoing Operations Revenue – all income that a business receives over a period.
Chapter 16 Statement of Cash Flows Accounting, 21 st Edition Warren Reeve Fess PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting.
Warren Reeve Duchac Accounting 26e Current Liabilities and Payroll 11 C H A P T E R human/iStock/360/Getty Images.
Chapter 11-1 CHAPTER 11 CURRENT LIABILITIES AND PAYROLL ACCOUNTING Accounting Principles, Eighth Edition.
Chapter Nine Accounting for Current Liabilities and Payroll McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
C Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned,
Completing the Accounting Cycle
KEWAJIBAN - Kewajiban lancar-.
Current Liabilities and Payroll
10 Current Liabilities and Payroll Financial and Managerial Accounting
Chapter 8 Receivables Accounting, 21st Edition Warren Reeve Fess
Accounting for Merchandising Businesses
Financial and Managerial Accounting
Electronic Presentation by Douglas Cloud Pepperdine University
Electronic Presentation by Douglas Cloud Pepperdine University
The Matching Concept and the Adjusting Process
Chapter 9 Inventories Accounting, 21st Edition Warren Reeve Fess
Current Liabilities and Payroll
Current Liabilities and Payroll
Chapter 21 Budgeting Accounting, 21st Edition Warren Reeve Fess
Current Liabilities and Payroll
Principles of Financial Accounting, 11e
Presentation transcript:

Financial and Managerial Accounting Chapter 10 Current Liabilities Financial and Managerial Accounting 8th Edition Warren Reeve Fess © 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. PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University

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.

After studying this chapter, you should be able to: Objectives 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. After studying this chapter, you should be able to:

Objectives 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.

The 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. Accounts payable Notes payable Unearned rent Taxes payable Wages payable Current portion of long term debt Examples:

Short-Term Notes Payable A firm issues a 90-day, 12% note for $1,000, dated August 1, 2006 to Murray Co. for a $1,000 overdue account. Aug. 1 Accounts Payable—Murray Co. 1 000 00 Notes Payable 1 000 00 Issued a 90-day, 12% note on account.

Short-Term Notes Payable On October 30, when the note matures, the firm pays the $1,000 principal plus $30 interest ($1,000 x .12 x 90/360). Oct. 30 Notes Payable 1 000 00 Interest Expense 30 00 Appears on the income statement as an “Other Expense.” Cash 1 030 00 Issued a 90-day, 12% note on account.

Short-Term Notes Payable Description Debit Credit Bowden Co. (Borrower) Coker Co. (Creditor) Description Debit Credit Mdse. Inventory 10,000 Accounts Payable 10,000 Accounts Receivable 10,000 Sales 10,000 Cost of Mdse. Sold 7,500 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 Payable Bowden Co. (Borrower) Coker Co. (Creditor) Description Debit Credit Coker Co. (Creditor) Description Debit Credit Mdse. Inventory 10,000 Accounts Payable 10,000 Accounts Receivable 10,000 Sales 10,000 Cost of Mdse. Sold 7,500 Mdse. Inventory 7,500 Accounts Receivable 10,000 Sales 10,000 Cost of Mdse. Sold 7,500 Mdse. Inventory 7,500 Accounts Payable 10,000 Notes Payable 10,000 Notes Receivable 10,000 Accounts Receivable 10,000 May 31. Bowden Co. issued a 60-day, 12% note for $10,000 to Coker on account.

Short-Term Notes Payable Bowden Co. (Borrower) Coker Co. (Creditor) Description Debit Credit Description Debit Credit 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. Mdse. Inventory 10,000 Accounts Payable 10,000 Accounts Receivable 10,000 Sales 10,000 Cost of Mdse. Sold 7,500 Mdse. Inventory 7,500 Accounts Payable 10,000 Notes Payable 10,000 Notes Receivable 10,000 Accounts Receivable 10,000 Notes Payable 10,000 Interest Expense 200 Cash 10,200 Cash 10,200 Interest Revenue 200 Notes Receivable 10,000

Discounted Notes Payable 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%. Aug. 10 Merchandise Inventory 19 250 00 Interest Expense 750 00 Proceeds Discount: $20,000 x .15 x 90/360 Notes Payable 20 000 00 Issued a 90-day, note to Rock Co. discounted at 15%. Discount rate

Discounted Notes Payable On November 8 the note is paid in full. Nov. 8 Notes Payable 20 000 00 Cash 20 000 00 Paid note due.

Contingent Liabilities

Product 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 Expense 3 000 00 Product Warranty Liability 3 000 00 Warranty expenses projected for June, 5% of $60,000.

Product Liability On August 16, a customer needed a defective part replaced. Cost to the company was $200 for the part. Aug. 16 Product Warranty Payable 200 00 Supplies 200 00 Replaced defective part under warranty.

Accounting Treatment of Contingent Liabilities Likelihood of Occurring Accounting Treatment Measurement Estimable Record Liability Probable Not Estimable Contingency Disclose Liability Possible Disclose Liability

Payroll and Payroll Taxes

Liability for Employee Earnings Payroll is the amount paid to employees for services provided. Payrolls are important because-- 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.

Gross Pay Calculation Earnings at base rate (40 x $34) $1,360 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 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.

FICA Tax Calculation Assume that John T. McGrath’s annual earnings prior to the current period total $99,038. His current period earnings are $1,462. Earnings subject to 6% social security tax ($100,000 – $99,038) $962 Social security tax rate x 6% Social security tax $57.72 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 Deductions Employers are required to withhold federal income tax from each employee based on the withholding table and information provided by the employee’s 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.

Employee Net Pay Calculation Gross earnings for the week $1,462.00 Deductions: Social security tax tax $ 57.72 Medicare tax 21.93 Federal income tax 279.51 Retirement savings 20.00 United Way 5.00 Total deductions 384.16 Net pay $1,077.84 John T. McGrath is single, has declared one withholding allowance, and had gross pay of $1,462 for the week ended December 27.

RESPONSIBILITY FOR TAX PAYMENTS EMPLOYEE BUSINESS GOVERNMENT Social security tax Medicare tax Federal unemployment compensation tax State unemployment compensation tax Social security tax Medicare tax Federal withholding tax

FEDERAL INCOME Corporate income tax 8% Estate, gift, and other 8% FICA and FUTA 38% Personal income tax 46%

FEDERAL OUTLAYS Physical, human, and community development 13% Interest on debt 8% Social programs 24% National defense 19% Social security and Medicare 33% Law enforcement and general government 3%

What is the purpose of a payroll register? It’s a multicolumn form used to help assemble and summarize the data needed for each payroll period. What is the purpose of a payroll register?

Payroll Register Summary Earnings: Regular $13,328.00 Overtime 574.00 Total $13,902.00 Deductions: Social security tax $ 643.07 Medicare tax 208.53 Federal income tax 3,332.00 Retirement savings 680.00 United Way 470.00 Accounts receivable 50.00 Total 5,383.60 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

Recording Employees’ Earnings Dec. 27 Sales Salaries Expense 11 122 00 Office Salaries Expense 2 780 00 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 Receivable—Fred Elrod 50 00 Salaries Payable 8 518 40 Payroll for week ended December 27.

Recording Employer’s Payroll Taxes Employer Taxes for the Week Ended December 27 Social security tax $ 643.07 Medicare tax 208.53 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

Recording Employer’s Payroll Taxes Dec. 27 Payroll Tax Expense 1 019 62 Social Security Tax Payable 643 07 Medicare Tax Payable 208 53 State Unemployment Tax Payable 146 34 Federal Unemployment Tax Pay. 21 68 Payroll taxes for week ended December 27.

Flow of Data in a Payroll System Wage and Tax Statements W-2 EMPLOYEES’ EARNINGS RECORDS Updated Variables (cumulative earnings, taxes) Constant Data (rates of pay, tax, etc.) Current Period’s Variables (hours worked) Payroll Tax Returns PAYROLL REGISTER Payroll Checks and Statements GENERAL LEDGER Financial Statements

Employees’ Fringe Benefits

Retirement and savings plans Social security and Medicare Benefit Dollars as a Percent of Total Other 2% Retirement and savings plans 18% Vacation and sick pay 29% 25% Social security and Medicare 26% Medical

Employees’ Fringe Benefits Vacation pay Vacation pay becomes the employer’s 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 on the employee’s behalf during the employee’s working years. Example: 401K Defined benefit plan Under this plan, the pension benefits are based on a formula and the employer bears the investment risk in funding a future retirement income benefit.

Solvency Measures — Quick Ratio Noble Co. Hart Co. Quick assets: Cash $ 100,000 $ 55,000 Cash equivalents 47,000 65,000 Accounts receivable (net) 84,000 472,000 Total $231,000 $592,000 Current liabilities $220,000 $740,000 Quick assets Current liabilities

Solvency Measures — Quick Ratio Noble Co. Hart Co. Quick assets: Cash $ 100,000 $ 55,000 Cash equivalents 47,000 65,000 Accounts receivable (net) 84,000 472,000 Total $231,000 $592,000 Current liabilities $220,000 $740,000 Quick assets Current liabilities $231,000 Noble Company $220,000 Quick ratio = 1.05

Solvency Measures — Quick Ratio Noble Co. Hart Co. Quick assets: Cash $ 100,000 $ 55,000 Cash equivalents 47,000 65,000 Accounts receivable (net) 84,000 472,000 Total $231,000 $592,000 Current liabilities $220,000 $740,000 Quick assets Current liabilities $592,000 Hart Company $740,000 Quick ratio = 0.80 Use: To indicate instant debt-paying ability

Chapter 10 The End