Question

Which of the following statements is correct? Group of answer choices Compensation expenses should be recognized...

Which of the following statements is correct?

Group of answer choices

Compensation expenses should be recognized when the employees earn salaries.

Social Security tax is paid only by the employer.

Payroll taxes are paid to employer.

Unemployment taxes are paid by the employee only.

Business   Accounting   
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Answer #1

Answer is first option – Compensation expense should be recognised when the employees earn salaries.

Compensation expenses are salaries and wages and they should be accrued in books when it is earned by employees even if cash is not paid for the same. Recognition of expenses when it is earned by employees is in line with accrual concept of accounting. Social security taxes like FICA and Medicare is payable by both employee and employer. For example FICA is 7.65% of salary equal contribution by employer and employee. Payroll taxes are not paid to employer. It has to be remitted to the respective authorities each month. Hence it is credited to payable account. It is part of current liabilities. Unemployment taxes are paid by employer and not employee. Unemployment taxes are FUTA and SUTA.

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