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When Alan is recording payroll in the accounting records, which of the following journal entries correctly reflects the employer's liability for payroll taxes withheld from employees' wages?
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9. Current Liabilities
Payroll and Payroll Taxes
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Recording employee payroll deductions may involve which of the following accounts?
A
Unearned Revenue
B
Prepaid Expenses
C
FICA Taxes Payable
D
Salaries and Wages Payable
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Understand the context of payroll deductions: Payroll deductions are amounts withheld from an employee's gross pay for taxes, benefits, and other obligations. These deductions are liabilities for the employer until they are paid to the respective entities.
Identify the accounts involved in payroll deductions: Common accounts include 'FICA Taxes Payable' for Social Security and Medicare taxes, 'Salaries and Wages Payable' for the net pay owed to employees, and other payable accounts for deductions like income tax or retirement contributions.
Analyze why 'FICA Taxes Payable' is correct: This account is used to record the employer's liability for Social Security and Medicare taxes withheld from employees' paychecks. It represents the amount owed to the government.
Understand why 'Salaries and Wages Payable' is relevant: This account represents the net amount owed to employees after all deductions have been subtracted from their gross pay. It is a liability until the employer pays the employees.
Clarify why 'Unearned Revenue' and 'Prepaid Expenses' are incorrect: 'Unearned Revenue' refers to money received before goods or services are provided, and 'Prepaid Expenses' refer to payments made in advance for future expenses. Neither is related to payroll deductions.
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