Chapter 11

A liability is an obligation a company owes to another party because of a past transaction or event, or, a creditors claim to your buissiness.

A current liability is a liability that is due in one year or in one operating cycle.

A long-term liablity is a liability that is due beyond one year or one operating cycle.

Some current liabilities are accounts payable, wages payable, sales tax payable, and short term notes payable.

Long-term notes payable, bonds payable, long-term loans

Sales tax is collected from customers and owed to the government. It is a liability.

Cash 5,300
sales revenue 5,000
sales tex payable 300

A short-term note payable is a written promise to repay a specific amount, usually with interest, within one year.

Cash Debit
Notes payable Credit

interest is calculated by P x R x T

Where P = Principal, R = Annual interest rate, and T = Time in years.

12000 x .12 x 1/12 (1 month)

Interest expense. Debit
Interest payable Credit

Gross pay is total compensation before deductions.

Net pay is the amount an employee actually receives after deductions.

Mandatory deductions are Federal income tax withholding, state income tax, social security tax, Medicare tax, Court-ordered garnishments

Voluntary deductions are health insurance premiums, retirement plans, life insurance

FICA stands for Federal Insurance Contributions Act. It consists of Social Security and Medicare taxes.

FUTA Federal Unemployment Tax Act; helps fund unemployment programs

SUTA State Unemployment Tax Act; funds state unemployment benefits

Wages expense Debit
tax payable per tax Credit
..... Credit
.... Credit