Financial Accounting: An Integrated Statements Approach, 2nd Edition

Social Security payroll tax will also be $1,035. Further, assume that the SUTA and

FUTA taxes are $145 and $25, respectively. The entry to record the payroll tax expense

for the week and the liability for the taxes accrued is shown below.

Payroll tax liabilities are paid to appropriate taxing authorities on a quarterly ba-

sis. The quarterly entry would debit the various taxes payable and credit Cash.

Employees’ Fringe Benefits. Many companies provide their employees a variety of

benefits in addition to salary and wages earned. Such fringe benefitsmay take many

forms, including vacations, medical benefits, and post-retirement benefits such as pen-

sion plans. When the employer pays part or all of the cost of the fringe benefits, these

costs must be recognized as expenses. To properly match revenues and expenses, the

estimated cost of these benefits should be recorded as an expense during the period in

which the employee earns the benefit.

Exhibit 3 shows benefit dollars as a percent of total benefits for 864 companies

surveyed by the U.S. Chamber of Commerce.

We will use vacation pay to illustrate fringe benefit accounting. Most employers

grant vacation rights, sometimes called compensated absences, to their employees. Such

rights give rise to a recordable contingent liability. The liability for employees’ vaca-

tion pay should be accrued as a liability as the vacation rights are earned. The entry to

accrue vacation pay may be recorded in total at the end of each fiscal year, or it may

be recorded at the end of each pay period. To illustrate this latter case, assume that

employees earn one day of vacation for each month worked during the year. Assume

also that the estimated vacation pay for the payroll period ending May 5 is $2,000. The

entry to record the accrued vacation pay for this pay period is shown as follows:

446 Chapter 10 Liabilities

Apr. 11 Payroll Tax Expense 1,205

FICA Tax Payable 1,035

SUTA Tax Payable 145

FUTA Tax Payable 25

.

BENEFIT DOLLARS AS A

PERCENT OF TOTAL

Social Security

and Medicare

Exhibit 3

Benefit Dollars as

a Percent of Total

May 5 Vacation Pay Expense 2,000

Vacation Pay Payable 2,000

Source:U.S Chamber of Commerce.

SCF BS IS

— Lc SET Ec

SCF BS IS

— Lc SET Ec