Chapter 11 Part 2 ESTIMATED LIABILTIES Obligation that

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Chapter 11 Part 2

Chapter 11 Part 2

ESTIMATED LIABILTIES • Obligation that exists but for which the amount and timing is

ESTIMATED LIABILTIES • Obligation that exists but for which the amount and timing is uncertain. • However, the company can reasonably estimate the liability. • Examples include property taxes and warranty liabilities.

PROPERTY TAXES • Property taxes are accrued monthly based on the prior year’s tax

PROPERTY TAXES • Property taxes are accrued monthly based on the prior year’s tax bill. • When the property tax bill for the current year is received, the company will adjust its monthly expense for the remainder of the year.

PRODUCT WARRANTIES • Warranty contracts may lead to future costs for replacement or repair

PRODUCT WARRANTIES • Warranty contracts may lead to future costs for replacement or repair of defective units. • Using prior experience with the product, the company estimates what the cost of servicing the warranty will be. • Estimated warranty costs are accrued with a debit to warranty expense and a credit to estimated warranty liability.

FINANCIAL STATEMENT PRESENTATION • Each major type of current liability is listed separately. •

FINANCIAL STATEMENT PRESENTATION • Each major type of current liability is listed separately. • Often list bank loans, notes payable, and accounts payable first, then other liabilities. COMINCO LTD. Current liabilities (Millions) Bank loans and notes payable Accounts payable and accrued liabilities Income and resource taxes Long-term debt due within one year $ 5 230 36 30 $301

INTERNAL CONTROLS FOR PAYROLL • The objectives of internal accounting control concerning payroll are

INTERNAL CONTROLS FOR PAYROLL • The objectives of internal accounting control concerning payroll are 1. to safeguard company assets from unauthorized payrolls and 2. to assure the accuracy and reliability of the accounting records pertaining to payrolls. • Payroll activities include: 1. hiring employees 2. timekeeping 3. preparing the payroll 4 Functions 4. paying the payroll of Payroll • These functions should be assigned to different departments or individuals.

GROSS EARNINGS • Gross earnings is the total compensation earned by an employee. •

GROSS EARNINGS • Gross earnings is the total compensation earned by an employee. • There are three types of gross earnings: 1. wages 2. salaries 3. bonuses • Total wages are determined by applying the hourly rate of pay to the hours worked. • Most companies are required to pay a minimum of one and one-half times the regular hourly rate for overtime work.

PAYROLL DEDUCTIONS • Voluntary deductions pertain to withholdings for charitable causes, retirement, and other

PAYROLL DEDUCTIONS • Voluntary deductions pertain to withholdings for charitable causes, retirement, and other purposes. • All voluntary payroll deductions should be authorized in writing by the employee. • Voluntary payroll deductions do not result in a payroll expense to the employer. • Net pay is determined by subtracting payroll deductions from gross earnings.

EMPLOYER PAYROLL COSTS • CPP • The employer must match each employee’s CPP contribution.

EMPLOYER PAYROLL COSTS • CPP • The employer must match each employee’s CPP contribution. • EI • The employer is required to contribute 1. 4 times each employee’s EI deductions. • Workplace Health, Safety, and Compensation • Employers pay a specified percentage of their gross payroll to provide supplemental benefits for workers who are injured or disabled in the workplace.

ADDITIONAL FRINGE BENEFITS PAID ABSENCES • Employees may have the right to receive compensation

ADDITIONAL FRINGE BENEFITS PAID ABSENCES • Employees may have the right to receive compensation for future benefits when certain conditions of employment are met. • The compensation may pertain to: 1. Paid vacation 2. Sick pay benefits 3. Paid holidays

ADDITIONAL FRINGE BENEFITS PAID ABSENCES • When the payment of compensation is probable and

ADDITIONAL FRINGE BENEFITS PAID ABSENCES • When the payment of compensation is probable and can reasonably be determined, a liability should be accrued. • When the amount can not be reasonably estimated, the potential liability should be disclosed.