Question

Crane incurs a weekly payroll of $251000 that includes federal taxes withheld of $38200, FICA taxes withheld of $23970, and 401(k) withholdings of $27300. What is the effect on assets and liabilities from recording this transaction? (Ignore company payroll taxes).

Answer 1

First let us define the nature of each of the following as per Balance sheet of a company:

Payroll payable- Liability

FICA taxes withheld- Liability

Federal taxes- Liability

410(k)- Liability

Step-by-step explanation:

Effect of Transaction on assets and liabilities:

• Payroll expense Debit will have no impact

• Payroll payable, Federal taxes, FICA and 401(k) will increase the current liability.
• And when they are subsequently paid, cash will be credited hence decreasing the current assets and all these current liabilities shall be debited, hence decreasing the current liability portion.