ACCT202: PH2 DB Essay

Submitted By MJ74
Words: 594
Pages: 3

MJ Shook
ACCT202-1402A-02: Accounting II
Professor Randolph Stanley
Colorado Technical University
Phase Two: The Balance Sheet-Liabilities
Discussion Board: Liabilities, Payroll, and Taxes
April 16, 2014

Estimated liabilities are acknowledged accounts where the exact amount is unknown at the time of reporting. They include such items as Salary, Unemployment Compensation, Employee Vacation Pay, and Utilities, to name a few. Estimated liabilities must be recorded in the Balance Sheet. Contingent liabilities or potential losses to the company are described as “just in case” accounts for future occurrences that may or may not happen. They are used to set aside amounts to cover such items as service or product warranties or lawsuits. Gross pay is the total amount of money earned for a certain amount of hours worked during a specific period of time. It can be any combination of salary, wages, commissions, and/or bonuses accumulated during the pay period. Gross pay is the amount an employee earns before any taxes and/or other deductions required or requested. For the employer, payroll becomes a short-term liability for the company. The financial debt usually classifies this liability as an employment or payroll expense account. Take home pay, also known as net or ending pay, is part of the wages earned that the employee keeps for themselves. Take home pay is the leftover amount after all necessary tax and deduction adjustments have been made to the gross pay amount. A quick formula to calculate this amount is as follows:
TAKE HOME PAY = GROSS PAY – ALL APPLICABLE DEDUCTIONS
Applicable deductions include, but are not limited to, withholding deductions, along with Federal Income Tax Withholding and FICA taxes. Withholding deductions include Federal and State taxes required. These deductions are paid directly to the specific government entities. Wage garnishments are deductions perhaps from legal debt or another type of loan obligation. Optional withholding deductions refer to contributions paid in by the employer voluntarily. They include retirement funds or other employee benefit programs as well as chosen charities, for example. Once deductions are withheld, the employer creates a liability account for the company. Federal Income Tax Withholding is a Federal government tax requirement that is not optional. It is based on pay and the number of allowances an employee chose when filling out their W-4's upon hire. The amount of tax lowers with each allowance claimed. Social Security and Medicare deductions also fall under this category. FICA stands for Federal Insurance Contributions…