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Employee Related Liabilities

This document discusses current liabilities, including employee-related liabilities. It describes current liabilities as obligations that are expected to be settled within one year or the normal operating cycle. Employee-related liabilities include payroll deductions for taxes and other amounts, as well as compensated absences like vacation pay. The document provides examples to illustrate accounting entries for payroll expenses and liabilities.

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raymondgunawan37
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118 views12 pages

Employee Related Liabilities

This document discusses current liabilities, including employee-related liabilities. It describes current liabilities as obligations that are expected to be settled within one year or the normal operating cycle. Employee-related liabilities include payroll deductions for taxes and other amounts, as well as compensated absences like vacation pay. The document provides examples to illustrate accounting entries for payroll expenses and liabilities.

Uploaded by

raymondgunawan37
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 12

Prepared by

Coby Harmon
University of California, Santa Barbara
Westmont College
13-1
Current Liabilities, CHAPTER 13
Provisions, and Contingencies
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Describe the nature, valuation, 3. Explain the accounting for
and reporting of current loss and gain contingencies.
liabilities. 4. Indicate how to present and
2. Explain the accounting for analyze liability-related
different types of provisions. information.

13-2
PREVIEW OF CHAPTER 13

Intermediate Accounting
IFRS 3rd Edition
13-3 Kieso ● Weygandt ● Warfield
LEARNING OBJECTIVE 1
Current Liabilities Describe the nature, valuation,
and reporting of current
liabilities.

Three essential characteristics:


1. Present obligation.

2. Arises from past events.

3. Results in an outflow of
resources (cash, goods,
services).

13-4 LO 1
Current Liabilities

A current liability is reported if one of two conditions


exists:
1. Liability is expected to be settled within its normal operating
cycle; or

2. Liability is expected to be settled within 12 months after the


reporting date.

The operating cycle is the period of time elapsing between the


acquisition of goods and services and the final cash realization resulting
from sales and subsequent collections.

13-5 LO 1
Current Liabilities

Employee-Related Liabilities
Amounts owed to employees for salaries or wages are
reported as a current liability.

Current liabilities may include:


 Payroll deductions.
 Compensated absences.
 Bonuses.

13-6 LO 1
Employee-Related Liabilities

Payroll Deductions
Taxes:
► Social Security Taxes
► Income Tax Withholding

ILLUSTRATION 13.4
Summary of Payroll Liabilities

13-7 LO 1
Employee-Related Liabilities

Illustration: Assume a weekly payroll of $10,000 entirely subject to


Social Security taxes (8%), with income tax withholding of $1,320 and
union dues of $88 deducted. The company records the wages and
salaries paid and the employee payroll deductions as follows.

Wages and Salaries Expense 10,000


Withholding Taxes Payable 1,320
Social Security Taxes Payable 800
Union Dues Payable 88
Cash 7,792

13-8 LO 1
Employee-Related Liabilities

Illustration: Assume a weekly payroll of $10,000 entirely subject to


Social Security taxes (8%), with income tax withholding of $1,320 and
union dues of $88 deducted. The company records the employer
payroll taxes as follows.

Payroll Tax Expense 800


Social Security Taxes Payable 800

The employer must remit to the government its share of Social Security tax
along with the amount of Social Security tax deducted from each employee’s
gross compensation.

13-9 LO 1
Employee-Related Liabilities

Compensated Absences
Paid absences for vacation, illness and maternity, paternity,
and jury leaves.
Vested rights - employer has an obligation to make payment to
an employee even after terminating his or her employment.

Accumulated rights - employees can carry forward to future


periods if not used in the period in which earned.

Non-accumulating rights - do not carry forward; they lapse if not


used.

13-10 LO 1
Employee-Related Liabilities

Illustration: Amutron NV began operations on January 1, 2019. The


company employs 10 individuals and pays each €480 per week.
Employees earned 20 unused vacation weeks in 2019. In 2020, the
employees used the vacation weeks, but now they each earn €540
per week. Amutron accrues the accumulated vacation pay on
December 31, 2019, as follows.

Salaries and Wages Expense 9,600


Salaries and Wages Payable 9,600

In 2020, it records the payment of vacation pay as follows.

Salaries and Wages Payable 9,600


Salaries and Wages Expense 1,200
Cash 10,800
13-11 LO 1
Employee-Related Liabilities

Profit-Sharing and Bonus Plans


Payments to certain or all employees in addition to their regular
salaries or wages.
 Bonuses paid are an operating expense.
 Unpaid bonuses should be reported as a current liability.

13-12 LO 1

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