HFT 2403

Chapter 12

Current Liabilities and Payroll

Liabilities

Liabilities – Debts of an organization Current Liabilities – Expected to be paid off in a year

or less– Accounts Payable– Payroll– Notes Payable

Long Term Liabilities – Expected to be paid off over a period greater than one year

– Mortgages Payable– Bonds Payable

Current Liabilities

Most are known and can be calculated exactly

Can also have estimated liabilities such as warranties

Loss Contingency Contingent Liability

Loss Contingency

An item in which a liability is reasonably expected to occur and the amount can be estimated. The likelihood of the event occurring is probable, not just possible

Loss contingencies are recorded on the balance sheet as an estimate– Warranties– Pending Lawsuit

Contingent Liability

A liability for a future event that may or may not take place

Contingent liabilities are listed as footnotes to the balance sheet and are not recorded as the amount is not known– Guarantor to a mortgage for a third party

Payroll

Payroll is the largest operating expense for a hospitality operation

As it is one of the most vulnerable areas for loss of money, control features to monitor payroll should be put in place and monitored closely

Payroll Control Features

Segregation of payroll duties Use proper procedures for recording and editing time worked.

Use a time clock. Payroll should be paid by check, not cash. Use a separate payroll checking account. Set the account up

on an imprest basis. Payroll sheets and paychecks should be checked by separate

departments Unclaimed payroll checks should be returned to the controller’s

office as soon after a pay date as possible Paychecks should automatically void after 30 days. Use paycheck sign out sheets Conduct independent, periodic payroll “payout” audits.

Payroll Records

Must be kept for a minimum of seven years Master payroll file information should include names,

addresses, SSN, wages rates and deductions. W-4 forms must be distributed timely Payroll journal – list each payroll check as well as

deductions Employee earnings record – kept for each employee

of the operation

Fair Labor Standards Act

Commonly called wage and hour law Regular pay for an employee is based on

forty (40) hours worked in a consecutive seven (7) day period

Hours worked over 40 must be paid at 1.5 the regular hourly rate.

Recording Payroll

Calculate Gross Pay – Hourly Rate x Hours Worked Calculated Deductions

– FICA 6.2%– Medicare 2.45%– FWT Variable based on exemptions claimed– SWT– Other deductions

Insurance Uniforms 401K

Journal Entry to Record Payroll

Debit Credit

Payroll Expense $1,000

FIT Payable $ 100.00

FICA/Med Payable 76.50

Health Ins. Payable 20.00

Salaries Payable 803.50

Employer Tax Expenses

All employers must match the amount withheld for FICA and Medicare Taxes

Employers must also pay taxes for FUTA (Federal Unemployment Tax) and SUTA (State Unemployment Tax) In most states, these amounts cannot be withheld from employees paychecks.

Journal Entry to Record Employer Taxes

Debit Credit

Payroll Tax Expense 101.50

FICA/Med Payable 76.50

FUTA Payable 10.00

SUTA Payable 15.00

Tipped Wages

Tip Credit – Amount allowed to adjust minimum wages paid by employer

If sufficient tips are not claimed, employer must make up the difference to minimum wage

TEFRA- Tax Equity and Fiscal Responsibility Act of 1982

– Tips reported must be 8% of gross receipts– Does not apply to fast food, cafeteria or banquet operations

Homework

None!