Key Terms
- account payable
- account for financial obligations to suppliers after purchasing products or services on credit
- Additional Medicare Tax
- requirement for employers to withhold 0.9% from employee pay for individuals who exceed an income threshold based on their filing status
- contingency
- current situation, where the outcome is unknown or uncertain and will not be resolved until a future point in time
- contingent liability
- uncertain outcome to a current condition that could produce a future debt or negative obligation for the company
- current liability
- debt or obligation due within one year or, in rare cases, a company’s standard operating cycle, whichever is greater
- current portion of a note payable
- portion of a long-term note due during the company’s current operating period
- defined contribution plans
- money set aside and held in account for employee’s retirement with possible contribution from employers
- federal income tax withholding
- amount withheld from employee pay based on employee responses given on Form W-4
- Federal Insurance Contribution Act (FICA) tax
- involuntary tax mandated by FICA that requires employers to withhold taxes from employee wages “to provide benefits for retirees, the disabled, and children”
- Federal Unemployment Tax Act (FUTA)
- response to a law requiring employers to pay into a federal unemployment insurance system that covers employees in case of job disruption due to factors outside of their control
- gross income (pay)
- amount earned by the employee before any reductions in pay occur due to involuntary and voluntary deductions
- interest
- monetary incentive to the lender, which justifies loan risk; interest is paid to the lender by the borrower
- involuntary deduction
- withholding that neither the employer nor the employee have control over, and is required by law
- likelihood of occurrence
- contingent liability must be recognized and disclosed if there is a probable liability determination before the preparation of financial statements has occurred
- local income tax withholding
- applied to those living or working within a jurisdiction to cover schooling, social services, park maintenance, and law enforcement
- measurement requirement
- company’s ability to reasonably estimate the amount of loss
- Medicare tax rate
- currently 1.45% of employee gross income with no taxable earnings cap
- net income (pay)
- (also, take home pay) remaining employee earnings balance after involuntary and voluntary deductions from employee pay
- note payable
- legal document between a borrower and a lender specifying terms of a financial arrangement; in most situations, the debt is long-term
- principal
- initial borrowed amount of a loan, not including interest; also, face value or maturity value of a bond (the amount to be paid at maturity)
- probable and estimable
- contingent liability is likely to occur and can be reasonably estimated
- probable and inestimable
- contingent liability is likely to occur but cannot be reasonably estimated
- reasonably possible
- contingent liability could occur but is not probable
- remote
- contingent liability is unlikely to occur
- short-term note payable
- debt created and due within a company’s operating period (less than a year)
- Social Security tax rate
- currently 6.2% of employees gross wage earnings with a maximum taxable earnings amount of $127,200 in 2017 and $128,400 in 2018
- state income tax withholding
- reduction to employee pay determined by responses given on Form W-4, or on a state withholdings certificate
- State Unemployment Tax Act (SUTA)
- response to a law requiring employers to pay into a state unemployment insurance system that covers employees in case of job disruption due to factors outside of their control
- taxes payable
- liability created when a company collects taxes on behalf of employees and customers
- unearned revenue
- advance payment for a product or service that has yet to be provided by the company; the transaction is a liability until the product or service is provided
- vacation compensation
- stipend provided by the employer to employees when they take time off for vacation
- voluntary deduction
- not required to be removed from employee pay unless the employee designates reduction of this amount