Accounting for Sunland Company's Liabilities and Payroll Transactions
What transactions occurred for Sunland Company's liabilities and payroll in January 2022?
- Borrowed $18,000 in cash on a note from Apex Bank
- Sold merchandise for cash with sales taxes included
- Performed services for customers with advance payments
- Paid state sales taxes to the treasurer's department
- Sold new product on credit with sales tax
- Employees earned wages with withholdings for Social Security, federal income tax, and state income tax
Answer:
The transactions for Sunland Company in January 2022 included borrowing cash, selling merchandise and services, paying state sales taxes, offering credit sales with sales tax, and processing employee wages with withholdings.
Explanation:
Accounting for Payroll
To handle the payroll entries as of January 31, the company must recognize the wages expense incurred even though it has not yet been paid.
- Record the total gross wages for the employees.
- Account for the withholdings from the wages for Social Security, federal income tax, and state income tax.
- Recognize the net wages payable to employees after the withholdings.
- Consider that the company owes no money for unemployment taxes at this time.
The payroll entry will impact both the company's income statement through wages expense and the balance sheet through various liabilities associated with payroll withholdings until the wages are actually paid in February.
Accounting for Sales Taxes
Additionally, the transactions mentioned include sales where sales tax is collected. Each sale needs to have the sales revenue recognized separately from the sales tax liability, which is settled with the state treasurer's department. After collection, this tax must be remitted to the government.