Download Current liabilities -- personnel costs

Payroll, payroll taxes, compensated absence, bonuses
Current liabilities
 Short-term debt to be met with one year or less (or operating cycle, if
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longer than a year)
Often arises from accruals –
Expense…………………………………………..XX
Payable………………………………………………………..XX
Examples –
 contractual amounts --accounts payable (AP), notes payable (NP), taxes
payable, wages payable.
 Amounts determined from operating activities– accrued expenses, payroll
taxes, compensated absences, bonuses, sales and use taxes, income taxes,
unearned revenue
 Contingent amounts – warranties, premiums, guarantees, loss contingencies
Recording the Payroll
 Gross pay of employees -weekly, bimonthly, monthly
 Withholdings (liabilities)–taxes (FICA --tax rate and ceiling, medicare,
federal, state, local income tax -- tax rate and no ceiling), retirement,
insurance (health, life, etc), voluntary savings/contributions, etc.
 Net pay – the amount paid to employees, salaries payable
 Salaries expense………………….XX
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FICA tax payable……………………………XX
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Federal income tax payable……………XX
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state income tax payable……………… XX
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Heath,insurance,retirement pay…….XX
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Salaries payable or cash…………………XX
Recording Payroll Taxes
 Payroll tax expense – the total of taxes the employer pays because they have
employees. This includes social security, unemployment, etc.
 Social Security Liabilities –Employer contributes to O.A.S.D.I. (old-age, survivor and
disability insurance) and medicare “social security taxes” as the employee does,
though the amount could be different depending on current tax rules.
 Unemployment Liabilities – Employer contributes to federal and state
unemployment taxes (FUTA and SUTA). Unemployment does have a ceiling or cap
based on employee gross pay per year.
 Payroll tax expense……………………………………XX
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Federal Unemployment Taxes Payable…………………….XX
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State Unemployment Taxes Payable…………………………XX
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OASDI taxes payable………………………………………………..XX
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Medicare taxes payable…………………………………………..XX
Recording Compensated Absences
 Compensated absences include -- vacation/holiday, sickness or personal
days for which the company pays the employee when not working
 Required entries needed if the following conditions are met.
 Employee service already rendered so right to compensated absence is “earned”
 Rights vest (employees can’t lose right to be paid if not used, even if leave
employment) and/or accumulate (carried over to another accounting period if not
used).
 Payment is very likely at some point.
 The amount of the payment can be calculated fairly accurately
Required accrual journal entry examples --vacation pay that vests and vacation pay
that doesn’t vest, if carried forward to another accounting period, sick leave if vests
(and will be paid eventually to employees even if they are not sick)
Optional accrual journal entry examples– sick leave that does not vest but
accumulates to another accounting period
Salaries expense……………………………………………XX
Liability for compensated absences………………………..XX
Recording bonuses
 Additional compensation incentives to some executives and
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managers
Earnings-based so often only given if company profits meet or exceed
a certain amount
Percentage of total profits or in excess of minimum amount
Paid shortly after end of year
Tax deductible expense
Bonus = income before taxes and bonus times bonus %
Bonus= income before taxes but after bonus times bonus%
Salaries expense…………………………………..XX
Bonus payable………………………………………………..XX