2. Current Liabilities & Payroll
Determinable (certain) current liabilities
Operating line of credit and bank overdraft
Short-term notes payable
Sales and property taxes
Current maturities of long-term debt
Uncertain liabilities
Estimated liabilities
Contingencies
Payroll
Employer and employee payroll costs
Recording payroll
Financial statement presentation
Copyright John Wiley & Sons Canada, Ltd.

3. CHAPTER 10: Current Liabilities and Payroll
Account for determinable or certain current liabilities.
Account for estimated liabilities.
Account for contingencies.
Determine payroll costs and record payroll transactions.
Prepare the current liabilities section of the balance sheet.
Calculate mandatory payroll deductions (Appendix 10A).
Copyright John Wiley & Sons Canada, Ltd. 3

4. Determinable (Certain) Current Liabilities
Obligations that are expected to be settled:
Within one year of the balance sheet date, or
Within normal operating cycle
Requires existence of a present obligation
Determinable liabilities have known amount, payee, due date
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5. Operating Line of Credit
Pre-authorized borrowing
Allows the company to borrow up to a preset limit when needed
May require collateral (security)
Such as current assets, investments, or property, plant and equipment
Used on a short-term basis
Negative (overdrawn) cash balance is called bank indebtedness, bank overdraft or bank advances
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6. Short-Term Notes Payable
Obligations in the form of written promissory notes
Usually require the borrower to pay interest
Used instead of accounts payable
Gives lender proof of obligation in case legal action is needed to collect
Issued for varying periods
If due within one year of the balance sheet date, classified as current liabilities
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7. Short-Term Notes Payable 2
Interest is recorded in the period the loan is outstanding:
At maturity, the face value of the note plus interest must be repaid:
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8. Copyright John Wiley & Sons Canada, Ltd.
Sales Taxes
Expressed as a percentage of the sales price of goods sold to customers
Includes goods and service tax (GST), provincial sales tax (PST) and harmonized sales taxes (GST and PST combined into the HST)
Remitted to government monthly, quarterly or annually
Amounts paid by customers for sales tax are not considered revenue, but are credited to Sales Tax Payable
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9. Copyright John Wiley & Sons Canada, Ltd.
Property Taxes
Paid for a calendar year
Upon receipt of the property tax bill, an expense is recorded for the months that have passed:
When paid, expense is recorded for additional months that have passed, and prepaid is set up for remaining months
Prepaid is cleared to expense at the end of year
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10. Current Maturities of Long-Term Debt
The portion of long-term debt that is due within the current year
Amount not due within current year is disclosed as a long-term liability
No adjusting entry is required to recognize the current portion of long-term debt
The proper classification is made when the balance sheet is prepared
Copyright John Wiley & Sons Canada, Ltd.

11. CHAPTER 10: Current Liabilities and Payroll
Account for determinable or certain current liabilities.
Account for estimated liabilities.
Account for contingencies.
Determine payroll costs and record payroll transactions.
Prepare the current liabilities section of the balance sheet.
Calculate mandatory payroll deductions (Appendix 10A).
Copyright John Wiley & Sons Canada, Ltd. 11

12. Estimated Liabilities
Obligation exists but the amount and timing is uncertain
We owe someone, but not sure how much, when or even who
Liability is recognized when:
Settlement of the liability is likely, and
Amount of the liability can be reasonable estimated
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13. Copyright John Wiley & Sons Canada, Ltd.
Product Warranties
Promises made by seller to buyer to repair or replace a product if it is defective or does not perform as intended
Warranties will lead to future costs for replacement or repair of defective units
Cost of warranty is estimated and accrued based on prior experience
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14. Customer Loyalty Programs and Gift Cards
Result in an estimated liability:
Not known if or when rewards will be redeemed
If redemptions are likely, and can be estimated based on past experience:
Record estimated liability as a reduction in revenue (not an expense)
Sales discount is a contra revenue account
Copyright John Wiley & Sons Canada, Ltd.

15. CHAPTER 10: Current Liabilities and Payroll
Account for determinable or certain current liabilities.
Account for estimated liabilities.
Account for contingencies.
Determine payroll costs and record payroll transactions.
Prepare the current liabilities section of the balance sheet.
Calculate mandatory payroll deductions (Appendix 10A).
Copyright John Wiley & Sons Canada, Ltd. 15

16. Contingent Liabilities (or Provisions)
Record liability if both conditions are met:
It is likely (or probable (“more likely than not”) under IFRS) that an obligation exists, and
Amount can be reasonably estimated
If contingent loss is likely, but cannot be reasonably estimated:
No liability is recorded
Disclosed in the notes to the statements
If contingency is unlikely:
Still disclosed if event is substantial, otherwise not disclosed
Copyright John Wiley & Sons Canada, Ltd.

17. CHAPTER 10: Current Liabilities and Payroll
Account for determinable or certain current liabilities.
Account for estimated liabilities.
Account for contingencies.
Determine payroll costs and record payroll transactions.
Prepare the current liabilities section of the balance sheet.
Calculate mandatory payroll deductions (Appendix 10A).
Copyright John Wiley & Sons Canada, Ltd. 17

18. Copyright John Wiley & Sons Canada, Ltd.
Payroll Accounting
More than paying employee salaries and wages
Companies are required by law:
To have payroll records for each employee
To report and remit payroll deductions
To respect federal and provincial laws
Two types of payroll costs:
Employee costs: amounts paid to employees (gross pay) & amounts paid by employees (payroll deductions)
Employer costs: amounts paid by employer on behalf of the employee (employee benefits)
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19. Gross Pay (or Gross Earnings)
The total compensation earned by an employee
Consists of:
Wages = hours worked x hourly rate of pay, or
Salaries: based on a weekly, biweekly, monthly or annual rate
Bonuses
Commissions
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20. Copyright John Wiley & Sons Canada, Ltd.
Payroll Deductions
The difference between gross pay and the amount actually received (net pay)
Mandatory payroll deductions:
Required by law
Personal income tax, Canada Pension Plan (CPP) and Employment Insurance (EI)
Determined from payroll deduction tables
Voluntary payroll deductions:
For charitable causes, retirement, and other purposes
Should be authorized in writing by the employee
Do not result in a payroll expense to the employer
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21. Employer Payroll Costs
Amounts an employer is required to pay
Required by governments:
CPP (matching the employee contribution)
EI (1.4 x the employee contribution)
Workplace safety and health
Additional employee benefits:
Paid absences: sick days, vacation, holidays
Post-employment benefits: to retired employees
These benefits give rise to liabilities that must be accrued
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22. Copyright John Wiley & Sons Canada, Ltd.
Recording the Payroll
Involves:
Maintaining payroll records
Recording payroll expenses and liabilities
Paying the payroll, and
Filing and remitting payroll deductions
Payroll Records
A separate earnings record is kept for each employee
Payroll register may be used to accumulate gross earnings, deductions & net pay by employee for each period
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23. Recording Payroll Expenses and Liabilities
Employee payroll costs:
Entry for the employee portion of a payroll
The company’s expense is equal to total gross pay
Employee payroll deductions become current liabilities of the company until remitted
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24. Recording Payroll Expenses and Liabilities 2
Employer payroll costs:
Recorded when the payroll is journalized
Become current liabilities of the company until remitted
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25. Recording Payment of the Payroll
Payment of payroll is either by cheque or electronic funds transfer (EFT)
Entry to record payment of payroll deductions:
Copyright John Wiley & Sons Canada, Ltd.

26. CHAPTER 10: Current Liabilities and Payroll
Account for determinable or certain current liabilities.
Account for estimated liabilities.
Account for contingencies.
Determine payroll costs and record payroll transactions.
Prepare the current liabilities section of the balance sheet.
Calculate mandatory payroll deductions (Appendix 10A).
Copyright John Wiley & Sons Canada, Ltd. 26

27. Financial Statement Presentation
Current liabilities are the first category reported in the liabilities section of the balance sheet
Each type of current liability is listed separately
Listed in order of liquidity, usually by maturity date
Also common to show bank loans, notes payable and accounts payable first regardless of size
Terms of operating lines of credit, notes payable and other information are disclosed in the notes
Copyright John Wiley & Sons Canada, Ltd.

28. CHAPTER 10: Current Liabilities and Payroll
Account for determinable or certain current liabilities.
Account for estimated liabilities.
Account for contingencies.
Determine payroll costs and record payroll transactions.
Prepare the current liabilities section of the balance sheet.
Calculate mandatory payroll deductions (Appendix 10A).
Copyright John Wiley & Sons Canada, Ltd. 28

29. Appendix 10A: Mandatory Payroll Deductions
Canada Pension Plan (CPP) contributions:
Calculated as a percentage of earnings (contribution rate) over a set minimum (basic exemption) to a maximum amount of earnings (maximum pensionable earnings)
Pro-rated per pay period
Employment Insurance (EI) contributions:
Calculated as a percentage of earnings to a maximum amount (maximum insurable earnings)
No basic exemption
Not pro-rated: deducted from pay until reach maximum
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30. Appendix 10A: Mandatory Payroll Deductions 2
Personal income tax deductions:
Based on tax rates set by federal and provincial governments
Progressive rates: higher percentage rates for higher income levels
Complicated calculations:
Best done using deduction tables or automated tools provided by the Canada Revenue Agency
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31. Copyright
Copyright © 2013 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (the Canadian copyright licensing agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these files or programs or from the use of the information contained herein.
Prepared by:
A. Davis, MSc, BComm, CA, CFE
Copyright John Wiley & Sons Canada, Ltd.