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chapter 12
Current Liabilities
goals discussion
goals achievement
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multiple
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problems
check list and key terms
Following is a "checklist" of selected key concepts that are likely to be included on an exam. Review and check-off each noted item to be certain that important concepts have not been overlooked in your study.
Define the term "liability."
What characteristics relate to current liabilities?
Identify typical current liabilities.
Describe the specific nature and proper financial statement presentation of collections for third parties.
What is an accrued liability?
Demonstrate the appropriate accounting for accrued salaries.
Why is the current portion of long-term debt presented as a current liability, and how are such amounts calculated?
Understand the nature of notes and the related interest calculations.
Be comfortable with the accounting for notes payable, including notes with interest included in the face value (and the related amortization process).
What is a contingent liability?
Describe the criteria that apply in accounting for contingencies.
Relate the matching principle to the accounting for warranties.
What is the significance of the distinction between an employee and an independent contractor?
Distinguish between gross pay and net pay.
Identify the nature of social security and medicare taxes, and understand the calculations related to the rate and base.
How do income taxes and other deductions enter into the calculation of net pay?
Be able to record journal entries for payroll and withholdings.
What is a W-2, and what is a W-4?
In addition to an employee's salary or wages, what other costs must an employer incur related to payroll?
Be able to record the payroll taxes levied on the employer.
Be able to describe the appropriate accounting for vacation pay.
Generally, describe the nature of a pension plan and the related accounting consequences.
Generally, describe postretirement health-care benefits and the related accounting consequences.
KEY TERMS AND DEFINITIONS (with links to discussion in text)
| accounts payable | Amounts due to suppliers relating to the purchase of goods and services on credit |
| compensated absences | Term to describe paid time off; vacations, sick leave, etc. |
| contingent liabilities | Events that may or may not give rise to an actual liability because the outcome is uncertain; examples include lawsuits, environmental damage issues, and so forth |
| defined benefit plan | A type of pension plan where the benefits are a function of years of service, pay, and age; the ultimate employer cost is not known in advance |
| defined contribution plan | A type of pension plan where the benefits are based on amounts in trust for the benefit of the employee; employer contributions are usually a fixed percentage of pay |
| employee | A person who works for a specific business and whose activities are directed by that business |
| FICA | Federal Insurance Contributions Act (also known as social security and Medicare); establishes a tax that employers must withhold and match for government-based retiree benefit |
| Form 1099 | A form required to be issued to an independent contractor reporting amounts paid; to assist with tax compliance issues (this form used to report other payments like interest, etc.) |
| FUTA | Federal Unemployment Tax levied on employer to provide funds for unemployed workers; rate is dependent on existence of SUTA and employer history of layoffs, etc. |
| gross pay | Also known as gross earnings; this it is the total amount earned by an employee before any deductions |
| income taxes | Taxes that are based on the amount income; for employees such amounts must be withheld by employers and remitted to the government |
| independent contractor | One who performs a designated task or service for a company, and the company has the right to control or direct only the result of the work done |
| net pay | Also known as net earnings; this is the gross pay less all applicable deductions ("take home pay") |
| notes payable | Formal short-term borrowings usually evidenced by a specific written promise to pay |
| pension plan | A general term to describe some form of arrangement for continuing payments to retirees |
| SUTA | State Unemployment Tax levied on employer to provide funds for unemployed workers; rate is adjusted for employer history of layoffs, etc. |
| W-2 | An annual statement provided to employees stating the amount of earnings and withholdings; assists employee in preparing their own tax returns |
| W-4 | A form filled out by an employee stating the amount of exemptions to which they are entitled for tax purposes; such exemptions bear on the amount of income tax withholdings |
| warranty liability | A liability that is recorded for the future costs of claims that are anticipated because of product warranty agreements |
| workers compensation insurance | Insurance paid by the employer to cover work related injuries sustained by employees |