Medicare is a type of payroll tax that employers need to calculate when processing payroll Medicare has both an employee and employer portion. In other words, employers will need to deduct Medicare taxes from employee wages when calculating net wages. The rate is currently 1.45% of gross wages. Unlike social security Medicare does not have an upper cap where taxes stop being calculated on wages. The employer will also have to pay 1.45% out of business profits as well. For more accounting information see accounting website. http://accountinginstruction.info/
Preferred stock can be misleading because the name preferred stock makes it sound better on all ways t the more traditional common stock. In reality the type of stock we would prefer to have depends on circumstance. The reason preferred stack is called preferred is because it preferred stockholder have first clam to things like dividends or payment on liquidation of a company. However the amount of dividend and payment is limited to the terms of the preferred stock. Common stock will not receive dividends until the preferred stock holders are paid but if the dividends paid are large common stockholders may get paid more. In other words, preferred stock provides more protection against loss by allowing for a primary claim to assets over common stockholders, but common stockholder may be looking for long term growth and will typically benefit if there is long term growth. For more accounting information see website. http://accountinginstruction.info/cou…
Payroll expense and wihholdings is one of the most complex journal entries that a company will see regularly. Part of the reason for the complexity in payroll journal entries is the legal requirement for the employer to withhold taxes and provide optional benefits. When thinking about payroll tax journal entry it is useful to start at the basic journal entry level. On a basic level the payroll journal entry would be similar to paying any expense with a debit to payroll expense and a credit to cash. The problem is the we will not be paying the employees the same amount they earned because we must withhold part of their earnings. Therefore, the payroll expense amount stays the same, the debit stays the same, because it represents what was the earned. The credit will be broken out into multiple components. We will credit liability accounts for payroll taxes payable. We will credit a liability accounting for social security payable, Medicare payable, and federal income tax FIT payable. We will credit payable accounts, liability accounts, because this is money earned by the employee that we owe to a third party, the government, and will pay on the employees behalf. We may also withhold things like union dues, health care, and retirement plans. The difference between the earning we debit to salaries expense and the credits to the payable accounts will be a credit to cash and equal the amount we actually pay to employees. For more accounting information see website. http://accountinginstruction.info/cou…
We will discuss the corporation for of business entity. As we think about he corporate form of business it is useful to make comparisons to other forms of business entities like a sole proprietorship and partnership. We also have other entities like LLC and S corporation. I think of business ententes in a similar way as a color wheel. We have the three prime components of sole proprietorship, partnership, and corporations and we have hybrids of S corporations and LLC. It is best to understand the prime components first, to know their pros and cons before considering how the hybrids are trying to get the best of each world. A corporate form of entity is is a separate legal entity. Being a separate legal entity means a corporation has more liability protections then other entities but it also causes problems like more paperwork to maintain and double taxation. In other words, the corporation must pay taxes as well as the owners, the stockholder when those earnings are distributed as dividends. The corporation is great for raising capital because it can sell stock. The owners of a corporation are stockholder. They have voting power to elect the board of directors who then hires management. For more accounting information see website. http://accountinginstruction.info/cou…
We will discuss stock dividends and stock splits, similar but different processes.
Stock dividends are similar to normal dividends in that the corporation is giving part of its earnings to the stockholders, to the owners. We will have a date of declaration where we record the dividend and a liability and will then issue the stock dividend in the future. The difference is that we will be giving stockholders stock instead of cash for the dividend. The journal entry for the stock dividend at the time of declaration is a debit to retained earnings or dividend and a credit to stock dividend payable, a liability. At the time of payment we will issue the stock dividend and reduce the liability account.
Stock splits are a bit different in that each stock holder will receive some increase in stock, usually in a ration format. for example if there was a 2 for 1 stock split and we had 4 stock before the stock split we would have 8 stocks after the stock split.
The stock split does not change the percentage ownership. The stock split also does not change the capital account balances. The stock dividend will decrease the par value and increase the number of shares.
For more accounting information see website.
Cash dividend journal entry in the general journal. We will post the journal entries to a worksheet to see the effect on the accounts and accounting equation. There are two journal entry time frames related to cash dividends. The first is the date of declaration. This is when the board of directors decides on a cash dividend. At the date of declarations we record a debit to dividends or retained earnings and a credit to the liability account of dividends payable. At some point in the future we pay the dividend and record the dividend journal entry of credit to cash and debit to dividend payable, reducing cash and reducing the liability. For more accounting information see website. http://accountinginstruction.info/cou…
The form 941 is a quarterly payroll tax form. Form 941 is filed four times a year and report payroll liability and deposits for federal income tax (FIT), social security, and Medicare, the FICA taxes. Form 941 is not used to calculate what we owe so we can make quarterly payment. Form 941 is an information return. In other word, we should already have paid the IRS for FICA and FIT before completing form 941. Form 941 will recalculate taxes owed for the quarter and payments made. Form 941 will calculate both the employer and employee portion of payroll taxes. Federal income tax withholding are all employee taxes while social security and medicare have an employee and employer portion. For more accounting information see website. http://accountinginstruction.info/cou…
The financial accounting transaction of issuing stock for cash is a corporate accounting transaction similar to a transaction for a sole proprietorship or partnership of owner investments. The corporation issues stock to receive capital investment from the owners, the stockholders. The journal entry for the sale of stock will include a debit to cash and a credit to common stock. However the credit to common stock will not equal the cash received if the stock has a set par value. We will credit the difference between the cash received and part value to Paid in capital in excess of par value. The financial transaction for the issuance of stock will not effect the income statements.
For more accounting information see website.
Reconciling the year end payroll tax forms will take a look at the payroll forms we put together including the quarterly payroll tax forms 941, the yearly payroll tax form 940, the yearly payroll tax form W-2, and the yearly payroll tax forms W-3. It is very common for problems to become apparent at the end of the year with relation to payroll because this is when we can reconcile the payroll tax forms. Finding problems in the payroll tax forms before finalizing them can save a lot of time because the IRS is very unforgiving with payroll. As accountants the reconciling process is nice and give us a scene of security that the number are correct in a similar way as the double entry accounting system helping to reduce errors in bookkeeping. The reconciling of the payroll tax forms is not as easy as it would seem. For example. the wages reported on W-2 and W-3 can be confusing to tie out to the wages reported on forms 941. The form W-3 will include three boxes that could have different wage numbers. Form W-3 can be difficult to match up with the forms 941s with regard to social security and medicare taxes because the form W-3 shows only the employee portion while the form 941s show both employee and employer portions. For more accounting information see website. http://accountinginstruction.info/cou…
The statement of retained earnings will show the activity for retained earnings over the period covered. The statement of retained earnings will start with beginning retained earnings be increased by net income and decreased by dividends. The statement of retained earnings is similar to the statement of owner’s equity or the statement of partners’ equity. The statement of retained earnings shows part of the full statement of stockholders equity. For more accounting information see website. http://accountinginstruction.info/cou…
