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In: Accounting

5. Explain what the account Accumulated Depreciation is, the normal balance, and how it is presented...

5. Explain what the account Accumulated Depreciation is, the normal balance, and how it is presented on the Balance Sheet.

6. Why would the bank balance be different than the ledger balance? Explain at least four reasons.

7. What taxes do employees pay on payroll? (List all)

8. What types of deductions are made out of employee’s checks? (List at least four)

Solutions

Expert Solution

5. Explain what the account Accumulated Depreciation is, the normal balance, and how it is presented on the Balance Sheet.

Accumulated depreciation is the total depreciation which has been charged on the asset over its life. Depreciation is the systematic write-off of the value of asset over its useful life.

Accumulated depreciation is a contra balance account. A contra balance account means an account which is shown as a reduction from the corresponding account. In this case, accumulated depreciation is shown in the balance sheet as a reduction from fixed assets account. It has a credit balance.

6. Why would the bank balance be different than the ledger balance? Explain at least four reasons.

The reasons for differences in bank balance and ledger balance are:

- Uncleared checks - These checks have been accounted for in the books of the company but has not been cleared by the bank. Therefore, tha bank balance appears higher than the bank balance as per ledger.

- Deposits in transit - These are checks that have been received by the company and shown in the books as cash. However, the same has not been deposited with bank/ cleared by it.

- Errors - There may be one or more errors such as omission, commission due to which there is a difference between actual bank balance and the one reported in ledger

- Charges recorded in bank statement but yet to be recorded in company's books - There are certain charges such as bank charges, interest etc. which may not have been recorded in the books.

7. What taxes do employees pay on payroll? (List all)

Payroll taxes are of two types - First category are thoe that are borne by employer while the second category includes taxes which are just remitted to the government by the employer. Hence, these taxes are actually borne by the employee.

The FICA tax is borne by both the employer and employee.

There is also an additional medicare tax which has to be borne by the employee

Among the taxes which are borne by employee directly are federal income taxes and various state and local taxes.

8. What types of deductions are made out of employee’s checks?

There are two types of deductions - Statutory and voluntary.

Statutory deductions: Some statutory deductions are -

Federal income tax

Social Security tax

Medicare tax

Additional Medicare tax

Voluntary deductions: Some voluntary deductions are -

Health insurance premiums

Life insurance premiums

Retirement plan contributions

Meals, uniforms expenses

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