Free Essay

Liabilities in Accounting

In: Business and Management

Submitted By jswain428
Words 310
Pages 2
Phase 2 DB Liabilities
Jason Swain

A contingent liability is a potential liability. A potential obligation that may be incurred depending on what may happen in the future. . A contingent liability is recorded in the books of accounts only if the contingency is probable and the amount of the liability can be estimated. ( www.investopedia.com)

Some liabilities are estimated liabilities. A compamy may have utility bills, or taxes pay, employee salaries insurance premiums, and maintenance that are owed. The exact amounts may not be known at the time that the financial statements are prepared so the liabilities had to be recorded by using estimated amounts.
(http://www.accountingcoach.com/)

The amount an employee clears on her or his payroll check after deductions and taves are taken out is the net amount: Gross pay is the amount of an employee's pretax compensation based on hours worked times an hourly rate of pay. (Weiss, 2015 livechat,).

An employee may have additional amount of their income to pay taxes on the money earned.. This amount comes out of the total or gross amount earned by the employee. Other amounts taken out of the gross pay such as insurance 401k contributions are taken out of the gross amount an employee earns.. (Weiss, 2015 livechat) Social Security tax along with the Medicare tax make up what is referred to as FICA In the year 2015, the employer's portion of the Social Security tax is 6.2% of an employee's annual wages and salary. (www.accountingcoach.com/)

Unemployment taxes paid by an company for their employees based on FUTA. The FUTA rate is 6.0% This amount is deducted from the amount of employee federal unemployment taxes you owe. Some states have their own State Unemployment Insurance Tax
Act or SUTA. All companies’ even small businesses must pay this tax.
(http://www.accountingcoach.com/).…...

Similar Documents

Free Essay

Liabilities

...Settlement expected to result in outflow of resources embodying economic benefits. Obligation must be to pay cash, transfer noncash asset or provide service at some future time Measurement of financial liability Initial: fair value plus directly attributable transaction costs Fair value: present value of future cash payment Present value: discounted amount of future cash outflow using market rate Conceptually, measure at present value Subsequent: amortized cost Measurement of current liabilities: face amount Measurement of noncurrent liabilities Interest-bearing: face amount (already the present value) Noninterest-bearing: present value (requires amortization using effective method) Classification 1. Current liabilities Expect to settle liability within entity’s operating cycle Ex. Trade payables, accruals Current even if settled more than twelve months after reporting period When normal operating cycle not clearly identifiable, it’s twelve months Holds liability primarily for trading Financial liabilities held for trading: incurred with intention to repurchase in near term Due to be settled within twelve months after reporting period Does not have unconditional right to defer settlement for at least twelve months after reporting period 2. Noncurrent liabilities: those not current Long term debt falling due within one year is Current even if: Original term longer than twelve months Agreement to refinance or reschedule on long term basis......

Words: 2034 - Pages: 9

Premium Essay

Liabilities

...Liabilities - Effects Of Capital Vs. Operating Leases Capital Leases - Effects On: • Balance sheet - At the inception of a capital lease, the company leasing the equipment will record the equipment as an asset, and the company will also recognize a liability on the balance sheet, by an amount equal to the present value of the minimum lease payments. The discount rate used will be the lower of the following two rates: The lessor's (the rental company's) implied rate The lessee incremental borrowing rate Going forward, the leased asset is depreciated in a manner consistent with the lessee's usual policy for depreciating its operational assets. It can be over the term of the lease (most common) or over the asset's useful life, if ownership transfers or a bargain purchase option is present. • Income statement - A capital-lease payment includes two components: one is the interest expense - which is included in the income statement but is not part of operating income (earnings before taxes from continuing operations) - and the second component is the principal payment, which is included in the income statement and operating income. The interest portion will be higher in the first few years of the lease, and is consistent with the interest expense of an amortized loan. Total income over the life of the leased assets will be the same for operating and capital leases. • Cash flow statement - Total cash flow statements remain unaffected by operating and capital leases.......

Words: 284 - Pages: 2

Premium Essay

Cyber Liability

...sector is needed for economic development as it provides long term funds for infrastructure development and strengthens the risk taking ability of individuals. It is estimated that over the next ten years India would require investments of the order of one trillion US dollars. INTRODUCTION In today’s modern business world virtually all data and personal or corporate information is managed and stored electronically. Whether it be profiles of employees, credit card information, sensitive demographic information about customers, internal information on budgets, customer lists, or personal health information, companies of any size face very real liability issues if this data is stolen, manipulated or were to fall into the wrong hands and enter the public domain. More and more we hear on the news and read in our local newspapers, stories about lost or stolen personal information and records. Many of these stories concern compromised credit card records, stolen computer equipment containing sensitive company or customer / patient information, employees who have downloaded copies of confidential records prior to leaving the company, and organizations who face ransom demands after having their systems locked down via service denial attacks. Both socially and in business, we are increasingly using IT systems to interact with one another and to buy things. The rapid development and......

Words: 14892 - Pages: 60

Premium Essay

Defend the Asset/Liability Approach of Accounting for Inter-Period Income Tax Allocation.

...Team 2: Defend the asset/liability approach of accounting for inter-period income tax allocation. The asset/liability method of income tax allocation is balance sheet oriented. The intent is to accrue and report the total tax benefit or taxes payable that will actually be realized or assessed on temporary differences when their respective future taxable or deductible amounts are expected to occur. The book states 5 arguments: 1. The balance sheet is becoming more important financial statement. Reporting deferred taxes based on the expected tax rates when the temporary differences reverse increases the predictive value of future cash flows, liquidity, and financial flexibility. 2. Reporting deferred taxes based on the expected tax rates is conceptually more sound because the reported amount represents either the likely future economic sacrifice (future tax payment) or economic benefit (future reduction in taxes). 3. Deferred taxes may be the result of historical transactions, but, by definition, they are taxes that are postponed and will be paid (or will reduce taxes) in the future at the future tax rates. 4. Estimates are used extensively in accounting. The use of estimated future tax rates for deferred taxes poses no more of a problem regarding verifiability and reliability than using, say, estimated lives for depreciation. 5. Because the tax expense results from changes in balance sheet values, its measurement is consistent with the SFAC No. 6 and SFAS...

Words: 642 - Pages: 3

Premium Essay

Intermediate Accounting Liabilities and Equities

...ACCT 307 Intermediate Accounting 2, Part B Assignment Professor: Allan Bishop Student Name: Darrell Allen Student Number: 810-390-377 Date: April 4th, 2013 1. The two companies that I have chosen are WalMart and Target. They are both retailer industries that sell numerous different items as well as provide services to customers. Particularly Walmart, which offers auto-repairs, eye-glasses, prescription drugs and fast food service (McDonalds). They sell items such as clothing, basic food items (amongst a wide variety of other food items), movies, books, video games and more. 2. A) The “capital” for Target is: Property and equipment: 2011 2012 Land 6,122 5,928 Buildings and improvements 26,837 23,081 Fixtures and equipment 5,141 4,939 Computer hardware and software 2,468 2,533 Construction-in-progress 963 567 Accumulated depreciation ...

Words: 868 - Pages: 4

Premium Essay

Liabilities

...Liabilities The role of a liability and what it means to the business as a whole is different for every business. What remains the same is the definition. A liability is a company’s legal debts or obligations that arise during the course of business operations and is recorded on the balance sheet. Liabilities can include many things to a business, such as, loans, accounts payable, mortgages, accrued expenses, etc. All the named liability accounts are just fancy for any money or service that is owed to another party. There are two types of liabilities, current liability and long term liability. Current liability is debt payable within one year and long-term liability is debt payable over more than a year. Current liability includes payables such as wages, accounts, taxes, and accounts payable. Long term liability includes long term bonds, notes payables, and long term leases. It is important that every business knows the concept of extinguishing liabilities. To extinguish liabilities means to satisfy the obligation and or payment to the creditor. Another way to extinguish liabilities is to transfer assets. This idea of extinguishing liabilities is meant for use by the SEC. There are many different industries that consider industry guidance in the FASB, Financial Accounting Standards Board, Codification and they include agriculture, contractors, entertainment, financial services and health care entities. The agriculture industry has many different characteristics......

Words: 944 - Pages: 4

Premium Essay

Accountant Liability

...Contrary to some belief, accounting is not a “walk-in-the-park” career. Accountants do not sit at a desk one-hundred percent of the time crunching numbers that always add up perfectly. In fact, accounting fraud is one of the largest scandals found today. When an accountant enters an engagement with a client, who are they liable to? Certainly not just to the client, but also anyone who could negatively be affected by a material misstatement, as well as the government. These responsibilities are not easily assumed, nor are they equally distributed. Accountants assume a large responsibility to their clients. They enter a contractual agreement through an engagement letter, and use engagement letters to minimize the risk they assume under the contract. Many engagement letters include memos limiting the recovery. (Reinstein, Lobingier, & Green, 2009) Accountants expressly agree to do a project by a specific date, and imply that the work will be completed carefully. If an accountant breaches the contract, they can be found liable for damages. If it can be found that an accountant did not act with skill and competence, causing harm to their client, negligence can be proved. Accountants also may be found guilty of fraud. Fraud can be proved if an accountant makes a false statement, knowing it is false, and the client relies on the information, resulting in damages. Another liability to the client is the trust clients give their accountants. They are liable to keep......

Words: 2779 - Pages: 12

Premium Essay

Liabilities

...Initial Recognition, Measurement, Presentation & Disclosure of Liabilities and Shareholder’s Equity A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits (IASB Framework). Apart from satisfying the definition of liability, the framework has also advised the following recognition criteria to be met before a liability could be shown on the face of a financial statement: * The outflow of resources embodying economic benefits (such as cash) from the entity is probable. * The cost / value of the obligation can be measured reliably. The minimum line items to be included on the face of the statement of financial position are: [IAS 1.54] (k) trade and other payables (l)provisions (m)financial liabilities (excluding amounts shown under (k) and (l)) (n)current tax liabilities and current tax assets, as defined in IAS 12 (o)deferred tax liabilities and deferred tax assets, as defined in IAS 12 (p)liabilities included in disposal groups (q)non-controlling interests, presented within equity (r) Issued capital and reserves attributable to owners of the parent. LIABILITIES Trade payables, financial liabilities and other liabilities Recognition | Measurement | Presentation | Disclosures | Recognized if qualifications of liabilities are met. | They are initially recognized at their fair value net of transaction...

Words: 5128 - Pages: 21

Premium Essay

International Accounting - Contemporary Issues Relating to Contingent Liabilities

...contingent liabilities, the proposal suggests that current obligations are the only ones to consider when accounting for liabilities, which in themselves should be stated separately from the events which may dictate their occurrence. The uncertainty of the events themselves should also be disclosed, when presenting the measurements for the liability. Additionally, defining contingency with regard to the amount required to settle a liability rather than the probability of its occurrence will aid the goal of better recognition rather than simple disclosure. Similarly, with respect to contingent assets, the proposed changes require elimination of the term “contingent asset,” and clarify that purely the rights associated with a past transaction or event give the ability to recognize an asset as such, to be controlled by an entity. The amendment proposal also inquires into the need for further guidance on how the creation of a constructive obligation is incurred, and proposes to omit the criterion of probability recognition, due to the contingent liabilities proposed change of recognizing the liability and applying contingency as a term solely for the amount and not the possibility of the liability. With regard to measurements, the proposal adds non-financial liability measurement to be determined in terms of the amount an entity would rationally pay to settle the present obligation, states the cash flow method as viable for measuring the above named liabilities, and......

Words: 984 - Pages: 4

Premium Essay

Liabilities

...CASE STUDY 8.1 PG 287 Disclosure of environmental liability By Lindene Patton C.I.H, Senior Vice President and Counsel, Zurich Around the world, companies are being required to meet higher levels of disclosure of environmental liability … in the United States, for example, the US Financial Accounting Standard Boards (FASB) issued provisions in 2002 for accounting for environmental liabilities on assets being retired from service. The provision for accounting for assets retirement obligations required companies to reserve environmental liabilities related to the eventual retirement of an assets if its fair market value could be reasonable estimated. The intent of the ruling was disclosure, but the conditional nature of estimating of fair market value caused corporations to take the position that they could defer their liability indefinitely by ‘mothballing’ a contaminated property. Companies effectively postponed the recognition of the environmental liabilities in the absence of pending or anticipated litigation. Earlier this year, FASB clarified its intention by providing an interpretation that said companies have a legal obligation to reserve for environmental and other liabilities associated with the eventual retirement of manufacturing facilities of parts of facilities, even when the timing or method of settlement in uncertain. Among examples given by FASB: * An asbestos-contaminated factory can not simply by ‘mothballd’ without adequate reserves to cover the......

Words: 2515 - Pages: 11

Free Essay

Contingent Liabilities

...A contingent liability is a potential loss that may occur at some point in the future, once various uncertainties have been resolved. This liability is not yet an actual, confirmed obligation. The exact status of a contingent liability is important when determining which liabilities to present in the balance sheet or in the attached disclosures. It is of interest to a financial analyst, who wants to understand the probability of such an issue becoming a full liability of a business, which could impact its status as a going concern. Examples of contingent liabilities are the outcome of a lawsuit, a government investigation, or the threat of expropriation. A warranty can also be considered a contingent liability, since there is uncertainty about the exact number of units that will be returned by customers for repair or replacement. For example, ABC Company files a lawsuit against Unlucky Company for $500,000. Unlucky’s attorney feels that the suit is without merit, so Unlucky merely discloses the existence of the lawsuit in the notes accompanying its financial statements. Several months later, Unlucky’s attorney recommends that the company should settle out of court for $75,000; at this point, the liability is both probable and can be estimated, so Unlucky records a $75,000 liability. The accounting rules for the treatment of a contingent liability are quite liberal - there is no need to record a liability unless the risk of loss is quite high. Thus, you should review......

Words: 325 - Pages: 2

Premium Essay

Current Liabilities

.... What is a “Current Liabilities”? What is a liability? Probable future sacrifices of economic benefits arising from present obligations of an entity to transfer assets or to provide services to other entities in the future as a result of past transactions or events.  FASB Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements” Current liabilities are: Obligations whose liquidation is reasonably expected to require the use of current assets or the creation of other current liabilities.  Accounting Research Bulletin No. 43, “Restatement and Revision of Accounting Research Bulletins”. SFAS No.78 indicates that current liabilities should include obligations that are due on demand or that will become due on demand within one year from the balance sheet date. 2. Typical current liabilities Accounts payable, Notes payable, Current maturities of long-term debt, Short-term obligations expected to be refinanced, Dividends Payable, Returnable deposits, Unearned revenues, Sales taxes payable, Income taxes payable, Employee-related Liabilities a. Notes Payables (N/P) Notes Payables are written promises to pay a certain sum of money on a specified future date. Notes payable that arise from cash-borrowing activities are generally of two types: (1) Interest-bearing notes, and (2)......

Words: 383 - Pages: 2

Premium Essay

Liability

...Liability I think a store that many, if not all people have been to at least once in their life would be Walmart. Considering the massive amount of inventory and size of the average Walmart the chance of something potentially happening is great. Walmart being an owner/occupier has an affirmative duty to warn of or make safe known conditions if non obvious and dangerous. One instance would be a slip and fall accident which are real risk when walking the many isles of Walmart. In some instances, the property owner is responsible for the injured party's injuries, and in others, the property owner will not be held liable. Walmart has a vast inventory of products and many aisle of which need to be monitored for potential slip hazards. An example would be if you were to be walking through the aisle and broken jar had not been cleaned up and you were to slip and fall on said item the Walmart could be held liable. Each case turns on whether Walmart acted responsibly so that slipping or tripping was not likely to happen. In order to establish Walmart knew of the hazard it must be shown that: Created the condition, knew the condition existed and negligently failed to correct it, knew hazard exited for a length of time that they should have discovered and prevented the injury. Another example of liability would be within a retail store like Target in which false imprisonment could happen. False imprisonment is the unlawful restraint of a person against her will by someone......

Words: 455 - Pages: 2

Premium Essay

Civil Liability

...Economics Volume XVIII (2011), No. 9(562), pp. 61-70 Limiting Civil Liability in the Sphere of Business Auditing Carmen COSTULEANU University “Petre Andrei”, Iaşi ccostuleanu@yahoo.com Ionel BOSTAN University “Al. I. Cuza”, Iaşi ionel_bostan@yahoo.com Emil HOROMNEA University “Al. I. Cuza”, Iaşi emil.horomnea@yahoo.com Marcel COSTULEANU University “Gr.T. Popa”, Iaşi mcostuleanu@yahoo.com Carmen CODREANU University “Petre Andrei”, Iaşi codrcarmen@yahoo.com Abstract. The statutory audit of business entities is represented by the audit of annual financial accounts or consolidated financial accounts, according to the Community legislation transposed in national regulations. Negligence or imprudence in performing the activities related to this type of audit entail special consequences. It is to some of the elements derived from this context that we refer in this paper, especially as there is often the underlying risk for the auditor to be held liable. It is worth noting that one cannot claim several compensations for the same action. Then, the auditor is not jointly liable with the other authors of the illicit actions which have caused damages. On the other hand, limited liability does not apply to the situations when it has been proven that the auditor has breached his professional duties with direct intent. Keywords: auditing contract; insurance; negligence/imprudence in the performance of duties; civil liability; faults; offences; damages. JEL Codes: M14, M41. REL Codes:......

Words: 3450 - Pages: 14

Premium Essay

Contingent Liability

...What is a contingent liability? A contingent liability is a potential liability…it depends on a future event occurring or not occurring. For example, if a parent guarantees a daughter’s first car loan, the parent has a contingent liability. If the daughter makes her car payments and pays off the loan, the parent will have no liability. If the daughter fails to make the payments, the parent will have a liability. If a company is sued by a former employee for $500,000 for age discrimination, the company has a contingent liability. If the company is found guilty, it will have a liability. However, if the company is not found guilty, the company will not have an actual liability. In accounting, a contingent liability and the related contingent loss are recorded with a journal entry only if the contingency is both probable and the amount can be estimated. If a contingent liability is only possible (not probable), or if the amount cannot be estimated, a journal entry is not required. However, a disclosure is required. When a contingent liability is remote (such as a nuisance suit), then neither a journal nor a disclosure is required. A product warranty is often cited as a contingent liability that is both probable and can be estimated. What is the difference between a contingent liability and an estimated liability? A contingent liability is a potential liability (and a potential loss). It is dependent upon a future event occurring or not occurring. For......

Words: 982 - Pages: 4