The advantage of approach A is that it makes creating the financial report relatively straight forward. Instead, management designs the COA around its own needs using managerial accounting principles. The more closely it adheres to that guidance, the less likely mistakes in applying that guidance will be made.Īpproach B does not require an accounting standard be selected at all. Once that standard has been selected, the COA is designed around that standard's recognition guidance. Instead of having to decide which standard will work best, they either apply the national GAAP or go to prison.Ī more detailed discussion of national GAAP is available in the release notes. In this respect, the management of a company operating in a country that prescribes a national GAAP has it easy. In the end, managment can decide what works best for them and their company. Then again, no ever said creating a COA for usable with two different reporting standards and two (generally incompatible) XBRL taxonomies was going to be a stroll in the park. Once the company becomes complicated (listed on an exchange with an IFRS and/or US GAAP reporting obligation), it can take months.Įven the standard COAs downloadable here were not easy.įor example, the universal COA (and all of its versions) took almost a year and over 1400 man hours. Once the company becomes more complicated (multiple divisions, multiple tax jurisdictions), it can take weeks. Then again, maybe we are just being cynical. We suppose this may also be the reason why this tax CPA makes this suggestion. The problem is the "Just be sure to make it easy for them by incorporating any special accounts they need into your remodeled chart accounts." is the hard part and, unless done very well, often leads to a tax CPA's services being more costly than they would otherwise have been. Just be sure to make it easy for them by incorporating any special accounts they need into your remodeled chart accounts." Sure, it is true that "tax and audit CPAs have the custom reporting software to easily convert your management-oriented chart of accounts into their format. Thus, the employee-paid portions of Social Security and Medicare taxes are not an expense to the company (and so do not appear on the income statement), but they are a liability (and so will appear on the balance sheet).And no, management cannot simply ignore tax reporting like the site we are criticizing suggests. In the latter case, the company is essentially an agent for the government, and is responsible for transferring the funds to the government. This liability is comprised of all the taxes just noted (until they are paid), plus the amount of any Social Security and Medicare taxes that are withheld from the pay of employees. Payroll Taxes Recognized as a LiabilityĪ company also incurs a liability for payroll taxes, which appears as a short-term liability on its balance sheet. If payroll taxes are charged to specific department, then part of the taxes will likely be charged to the production department, in which case you have the option of including them in an overhead cost pool, from which they can be allocated to the cost of goods sold and ending inventory this can defer the recognition of a portion of the payroll taxes until such time as the inventory is sold. Payroll Management Payroll Taxes Recognized in the Cost of Goods Sold or Inventory They may be charged to a single payroll taxes account, or charged to a payroll taxes account within each department. Payroll taxes should be charged to expense in the period incurred. All of these payroll taxes are valid expenses of the company, and will appear on its income statement. In some locations, there may be additional taxes owed by the company, such as a head tax for every person employed within the boundaries of a city. A company records an expense on the income statement for the employer matching portion of any Social Security and Medicare taxes, as well as the entire amount of any federal and state unemployment taxes (since they are paid by the company and not the employees). When a company incurs an obligation to pay payroll taxes to the government, a portion of it appears on the income statement, and a portion on the balance sheet.
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