Payroll Liabilities and Tax Records, Page 15

Tax Liability Payments and Tax Report: Federal Tax Example

John Roadways pays $858.94 in taxes: Federal Income Tax Payable totaled $212.00, Social Security Tax Payable totaled $470.44, and Medicare Tax Payable totaled $176.50.

Analysis: 

1. Identify: The following accounts are affected: 

• Employees’ Federal Income Tax Payable 
• Social Security Tax Payable 
• Medicare Tax Payable 
• Cash in Bank 

2. Classify: The accounts can be classified as: 

• Employees’ Federal Income Tax Payable – Liability Account 
• Social Security Tax Payable – Liability Account 
• Medicare Tax Payable – Liability Account 
• Cash in Bank – Asset Account 

3. Effect: 

• Employee Federal Income Tax Payable decreased by $212.00 
• Social Security Tax Payable decreased by $470.44 
• Medicare Tax Payable decreased by $176.50 
• Cash in Bank decreased by $858.94 

4. Debit rule: Debit Liabilities accounts 
5. Credit rule: Credit Cash in Bank account 
6. Prepare T Accounts

7. Post a journal entry