Payroll Basics
What is net pay and how is it calculated?
Net Pay = Gross Pay – Deductions
(Take-home pay after taxes and other withholdings)
What federal payroll tax funds unemployment compensation?
FUTA (Federal Unemployment Tax Act)
What is debited when recording employee payroll expense?
Salaries (or Wages) Expense
What is a current liability?
A debt due within one year or the company’s operating cycle.
What is the formula to calculate interest on a short-term note?
Principal × Rate × Time
What is gross pay and what does it include?
Gross Pay = Total earnings before deductions
(Includes wages, bonuses, commissions)
What is the state-level equivalent of FUTA?
SUTA (State Unemployment Tax Act)
What is credited when payroll deductions are withheld?
Payroll Deductions Payable or Withholding Payable
What is a short-term note payable?
A written promise to pay within one year
What is the formula for net pay?
Net Pay = Gross Pay – Payroll Deductions
Who pays FICA taxes to the government?
Both employer and employee pay FICA
What form reports FICA taxes to the IRS?
IRS Form 941
What is the journal entry when salaries are paid to employees?
Debit: Payroll Deductions Payable
Debit: Salaries Expense
Credit: Cash
What is an accrued liability?
A liability incurred but not yet paid, such as salaries payable.
What type of liability is warranty expense considered?
Contingent Liability (estimated)
What is a payroll deduction?
Amounts withheld from an employee's gross pay (e.g., taxes, insurance).
What payroll liability is created by the employer, not the employee?
Employer Payroll Taxes (e.g., employer’s share of FICA, FUTA, SUTA)
What is credited when sales tax is collected at the point of sale?
Sales Tax Payable
What is unearned revenue classified as?
A current liability until goods/services are delivered. (something along these lines of liabilities until services are done)
What are the tax deduction percentages for FICA? Name both percentages and associate the right percentage for each one.
FICA - Medicare 1.45%, FICA - Social Security 6.2%
What is the purpose of the payroll bank account in a business?
Used only to pay employee wages (matches net pay to checks issued)
How does merit rating affect employer payroll taxes?
It lowers the employer’s SUTA tax rate if they maintain steady employment
What is the journal entry to estimate warranty expense on sold products?
Debit: Warranty Expense
Credit: Warranty Liability
(Estimated based on historical claims %)
When is a contingent liability recorded on the balance sheet?
If it is probable and the amount can be reasonably estimated.
An employee earns $3,000 in gross wages. Social Security tax is 6.2% and Medicare is 1.45%. What is the total FICA tax withheld from the employee’s paycheck?
FICA = ($3,000 × 6.2%) + ($3,000 × 1.45%) = $186 + $43.50 = $229.50