ACCT 2301 Chapter 11

due and payable within one year

_when assets are purchased _when borrowing money _to creditor's to temporarily satisfy an account payable created earlier

face value plus the interest

debit Accounts Payable; credit Notes Payable

it is making a loan.

The company or bank

The individuals or companies receiving the loans

debts due beyond one year.

are debts that will be paid out of current assets and are due within one year.

**Long-term liabilities are often paid back in periodic payments **Installments that are due within the coming year must be classified as a current liability. The installments due after the coming year are classified as a long-term liability.

*The interest rate on the note is called the discount rate. *The amount of interest on the note, called the discount, is computed by multiplying the discount rate times the face amount of the note. *The debtor (borrower) receives the face amount of the note less the discount, called the proceeds. *The debtor must repay the face amount of the note on the due date.

the amount paid to employees for services they provided during the period

**Payroll and related payroll taxes significantly affect the net income of most companies. **Payroll is subject to federal and state regulations. **Good employee morale requires payroll to be paid timely and accurately

payment for managerial and administrative services. Salary is normally expressed in terms of a month or a year

payment for employee manual labor. The rate of wages is normally stated on an hourly or weekly basis

The total earnings of an employee for a payroll period, including any overtime pay

subtracted one or more deductions

Social Security and Medicare

provides payments for retirees, survivors, and disability insurance. (Assume 6% on all earnings.)

provides health insurance benefits for senior citizens. (Assume 1.5% on all earnings.)

Employers are subject to the following payroll taxes for amounts paid their employees: **FICA Tax **Federal Unemployment Compensation Tax (FUTA) **State Unemployment Compensation Tax (SUTA)

*Pay employees accurately and timely. *Meet regulatory requirements of federal, state, and local agencies. *Provide useful data for management decision-making needs.

is a multicolumn report used for summarizing the data for each payroll period

A detailed payroll record must be kept for each employee

are prepared at the end of each payroll period. Each check includes a detachable statement showing the details of how the net pay was computed.

constants and variables

are data that remain unchanged from payroll to payroll. *Employee names *Social security numbers

are data that change from payroll to payroll. *Number of hours or days worked *Accrued sick leave

*If a check-signing machine is used, blank payroll checks and access to the machine should be restricted to prevent their theft or misuse. *The hiring and firing of employees should be properly authorized and approved in writing.

*All changes in pay rates should be properly authorized and approved in writing. *Employees should be observed when arriving for work to verify that employees are "checking in" for work only once and only for themselves. *Payroll checks should be distributed by someone other than employee supervisors. *A special payroll bank account should be used.

Vacation pay (sometimes called compensated absences) Medical benefits Retirement benefits

is a cash payment to retired employees. Pension rights are accrued by employees as they work, based on the employer's pension plan. Two types of pension plans are: *Defined contribution plan *Defined benefit plan

the company invests contributions on behalf of the employee during the employee's working years. *Normally, the employee and employer contribute to the plan. *The employee's pension depends on the total contributions and the investment returns earned on those contributions.

the employer is obligated to pay for (fund) the employee's future pension benefits. *Many companies are replacing their defined benefit plans with defined contribution plans. *A retired employee receives a specific amount based on his or her salary history and years of service.

Employees may earn rights to other postretirement benefits, such as dental care, eye care, medical care, life insurance, tuition assistance, tax services, and legal services.

Some liabilities may arise from past transactions if certain events occur in the future. These potential obligations are called contingent liabilities. The accounting for contingent liabilities depends on the following two factors: *Likelihood of occurring: Probable, reasonably possible, or remote *Measurement: Estimable or not estimable

helps creditors evaluate a company's ability to pay its current liabilities. It is based on: *Working capital, the excess of current assets over current liabilities *Current ratio, determined by dividing the current assets by the current liabilities *Quick ratio, an indicator of a company's short-term liquidity

are cash and other current assets that can be easily converted to cash

measures the "instant" debt-paying ability of a company and is computed as follows: Quick Assets/Current Liabilities