Payroll Liabilities and Tax Records, Page 17

Federal Unemployment Taxes

Normally the FUTA taxes are paid quarterly. However, if the tax amount is less than $100, businesses are permitted to make one annual payment.

Consider the following example:

John Roadways pays $32.44 in Federal Unemployment Taxes.

Analysis: 

1. Identify: The following accounts are affected: 

• Federal Unemployment Taxes Payable 
• Cash in Bank 

2. Classify: The accounts can be classified as: 

• Federal Unemployment Taxes Payable – Liability Account 
• Cash in Bank – Asset Account 

3. Effect: 

• Federal Unemployment Taxes Payable decreased by $32.44 
• Cash in Bank decreased by $32.44 

4. Debit rule: Debit Federal Unemployment Taxes Payable 
5. Credit rule: Credit Cash in Bank 
6. Prepare T Accounts

7. Post a journal entry