Chapter FOUR

1. ETHIOPIAN PAYROLL SYSTEM.

After completing this section, you will be able to;
 Define basic terms and documents involved in payroll accounting.
 Explain the need for payroll accounting.
 Calculate total earnings, deductions and net pay of employees.
 Record payroll related liabilities.

In accounting, payroll refers to the amount paid employees for services they provided
during the period.
Payroll accounting is important for the following reasons:
Employees are sensitive to payroll errors and irregularities.
Good employee morale requires payroll to be paid timely and accurately.
Payroll is subject to federal and state regulations. Both federal and state governments require
that detailed payroll records be kept.
Payroll often represents the largest expense that a company incurs.
Adequate payroll system safeguards the financial resources of the organization from misuse and
theft.
Accounting systems for payroll and payroll taxes are concerned with the records and reports
associated with the employer- employee relationship. It is important that the accounting system
provide safeguard to ensure that payments are in accord with management’s general plans and its
specific authorizations.
All employees of an organization expect and are entitled to receive their remuneration at regular
intervals. Following the close of each payroll period. Regardless of the number of employees and
the difficulties in computing the amounts to be paid, the payroll system must be designed to
process the necessary data quickly and assure payment of the correct amount to each employee.
The system must also provide adequate safeguards against un-authorized payments to employees
and other misappropriations of funds. Various federal, state, and local laws require employers to
keep accurate payroll records and to prepare reports and submit to the appropriate governmental
units. The law also requires employers to remit the amounts withheld from its employees and for
taxes imposed on it. These records must be kept for specified periods of time and be available for
inspection by those responsible for enforcement of the laws. Besides, payroll data may be useful
in negotiations with labor unions, in settling employee grievances, and in determining rights to
vacations, sick leaves, and retirement pensions.
Here, in this section, we are going to discuss deeply and work-through the major concepts that are

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common to most payroll systems such as the employee’s earnings record, payroll sheet(or
register), and journal entries related to payroll. Each of these concepts is illustrated and discussed
by taking in to account the current tax law of the country. As much as possible it attempts to give
you adequate knowledge about payroll systems in Ethiopia, however, if you come across any
confusion or difficulties you can consult the authorities in the Ministry of Finance or Revenue
Administration in your locality, or refer the various proclamations especially; Proclamation No.
979/2016 and Proclamation No. 983/2016.
3.3.1. Definition of Payroll Related Terms
Payroll accounting involves so many generally accepted and standardized terms. This helps to
attain uniformity in the system both within the organization and with other related parties. The
following are the most common terms used in payroll accounting:
1. Salary and Wages: salary and wages are usually used interchangeably. However,
the term wages is more correctly used to refer to payments to unskilled-manual
labor. It is usually paid based on the number of hours worked or the number of units
produced. Therefore, wages are usually paid when a particular piece of work is
completed weekly. On the other hand, salaries refers to payments to employees who
render managerial, administrative or similar services, and they are usually paid to
skilled labor on a monthly or yearly basis.
Both wages and salaries are related to an ‘employee,’ that is, individual who works
primarily to one organization and whose activities are under the direct supervision of the
employer.
2. Pay Period: a pay period refers to the length of time covered by each payroll
payment.
3. Pay Day:- is the day on which wages or salaries are paid to employees. This is
usually on the last day of the pay period.
4. A Payroll Register (sheet): is the list of employees of a business along with each
employee’s gross earning; deductions and net-pay (take home pay) for a particular
pay period. Then input for payroll register is the employees work hour duration
summarized from any of the following sources:
Attendance-sheets: is where employees sign at the time of arrival in the working area. It is
usually placed in offices and administrative areas.
Punched (clock) cards; is an electronically recorded card, where each employee will have his/her
own card for registering both at the time entering and leaving the working place. This mechanism
is commonly placed at the gated of manufacturing plants.
Time cards: is more or less similar to punched card except that the time is manually written in
hand written format by the employee.

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5. Gross Earnings: it is the total amount of income earned by employees from different
sources.
Gross Earning = Basic Salary + allowances + Overtime Earring
6. Payroll Deductions: are deductions from the gross earnings of an employee such as
employment income taxes (withholding taxes), labor union dues, fines, credit association
pays etc.
7. Employment Income Tax: are taxes collected from the earnings of employees by the
employer organization as per the regulations of the government. These have to be
submitted (paid) to the government because employer organization is only acting as an
agent of the government in collecting these taxes for employees.
8. Pension contribution: employers deducts some amount of money from employees to
provide some benefits to the employees after retirement and during old age, with a view to
create a feeling of security about the old age to create a feeling of security about the old
age. Pensions and provident funds benefits are called retirement benefits. Permanent
employees of an organization governed by the existing regulations of the Ethiopian civil
servants are expected to pay or contributed 7% of their monthly basic salary to the
government pension trust fund. This amount should be withheld by the employer from the
basic salary of each employee on every payroll and latter be paid to the respective
government body.
On the other hand, the employer is also expected to contribute11% of the basic salary of every
civil permanent employee towards the same fund. This amount is said to be payroll tax expense to
the employer.
Consequently, the total contribution to the pension trust fund of the Ethiopian government is equal
to 18%of the total basic salary of all civil permanent employees of an organization.
9. Net Pay: Net-pay is the earning of an employee’s after all deductions have been
made. This is take home pay amount collected by an employee on the payday.
10. Pay Check: a business can pay payroll by witting a check for the amount of the net
pay. A check is prepared in the name of each employee and handed to employee.
Alternatively a check for the total net-pay of all employees can be prepared so it will
be paid in cash at the organization for each employee.

As per article 12 of the income tax proclamation, employment incomes include the following:
 Salary, wages, allowance, bonus, commission, gratuity, or other remuneration received by an
employee in respect of a past, current, or future employment;
 the value of fringe benefits received by an employee in respect of a past, current, or future
employment;
 An amount received by an employee on termination of employment, whether paid voluntarily,
under an agreement, or as a result of legal proceedings, including any compensation for

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redundancy or loss of employment, or a golden handshake payment.

3.3.2. Possible Components of a Payroll Register.
1. Employee Number: number assigned to employees for identification purpose when a
relatively large number of employees are involved in a payroll register.
2. Name of Employees.
3. Earnings: Money earned by an employee from various sources. This may include.
a) Basic Salary-a flat monthly salary of an employee for carrying out the normal work of
employment and subject to change when the employee is promoted.
b) Allowances- money paid monthly to an employee for special reasons, like:
Position allowance- a monthly paid to an employee of earning a particular office responsibility.
Housing allowance- a monthly allowance given to cover housing costs of the individual
employee when the employment contract requires the employer to provide housing but the
employer fails to do so.
 Hardship allowance- a sum of money given to an employee to compensate for an
inconvenient circumstance caused by the employer. For instance, unexpected transfer to a
different and distant work area or location.
 Desert allowance- a monthly allowance given to an employee because of assignment to a
relatively hot region.
 Transportation (fuel) allowance- a monthly allowance to an employee to cover cost of
Transportation up to her work place if the employer has committed itself to provide
transportation service.
Overtime Earning: is the work done in excess of the normal daily hours of work. Normal
hours of work shall not exceed 8 hours a day or 40 hours a week.
Overtime earnings are therefore the amount paid to an employee for overtime work
performed. Normal hours of work; means that the time during which a worker actually
performs work or avails himself/herself for work in accordance with law, collective
agreement or work rules.
The overtime earnings are calculated with the following formula;
Over time earnings (OTE) = OT hrs worked X ordinary hourly rate X OT rate.

According to article 68 of proclamation no.307/2003 and the amended proclamation

no.494/2006, the following are set aside about overtime pay.

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Time of work done Over time rate

1 6 am morning to 10 pm evening 1.25 times ordinary hourly rate
2 10 pm evening to 6am morning 1.5 times ordinary hourly rate
3 Weekly rest days( Sunday and / or Saturday) 2 times ordinary hourly rate
4 Public holiday 2.5 times ordinary hourly rate
Ordinary hourly rate = Basic Salary
Normal Hours of Work.
4. Gross Earning= Basic Salary + allowances + Overtime Earring
5. Deductions: are subtractions made from the earnings of employees required by the government
or permitted by the employee himself. These include:
a) Employment Income Tax:
An employer paying employment income to an employee who is subject to employment income
tax shall withhold tax from the gross amount of each payment of employment income at the rate
applicable. In Ethiopia income tax is charged on the gross earnings of the employee at the rates
indicated under Schedule A of the Proclamation No.979/2016- Income tax proclamation. An
employee shall not be allowed a deduction for any expenditure incurred in driving employment
income. Employment income shall not include exempt income.

The tax proclamation also provides some exemptions. Exemption, in this context, refers to
income, which is not subject to tax. As per the proclamation, there are lists of income exempted
from employment income tax:
Proclamation No.979/2016 states that the following are not taxable
An amount paid by an employer to cover the actual cost of medical treatment of an employee.
Transportation allowance granted under a contact of employment
Hardship allowance
Reimbursed traveling expense and per diem (incurred on duty)
Food and beverages provided for free to an employee by an employer conducting a mining,
manufacturing or agricultural business.
Contributions by an employer to a pension, provident fund or other retirement fund for the
benefit of an employee provided for the monthly total of contributions doesnot exceed 15% of the
monthly income
An amount as compensation for personal injury or the death of another person
Salaries paid to domestic servants

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3.3.3. Employment income tax computation

Employment income tax is calculated using the following rates;

Employment Income (per month) in Birr Income Tax-rate
0 – 600 0
601 - 1,650 10%
1,651 - 3,200 15%
3,201 - 5,250 20%
5,251 - 7,800 25%
7,801 – 10,900 30%
Greater than 10,900 35%
The most widely used employment income tax computation methods are progression and
deduction.
i. Progression method
The amount of taxis calculated for each layer of tax brackets by multiplying the given rate under
schedule for each additional layer. Assume that Ato Getenet Abebe earned an amount of birr
5,800 subject to income tax; his employment income tax is calculated as follows.
Earning x tax-rate (%) = income-
tax
600 x 0 00.00
1050 X 10 105
1550 X 15 232.5
2050 X 20 410
550 X 25 137.5
5,800 885
ii. Deduction method
In preparation of payroll and computing the employment income-tax, the following shortcut
formula can be used.
Income tax = (gross taxable income X tax rate) - deduction
Employment income tax(per Tax rate (%) Deduction(in birr)
month)
Over birr To birr

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0 600 0% (Exempt threshold) 0

601 1,650 10% 60
1,651 3,200 15% 142.5
3,201 5,250 20% 302.5
5,251 7,800 25% 565
7,801 10,900 30% 955
>10,900 35% 1,500
Example; we can calculate the income tax of Ato Getenet Abebe given in the previous example
who earn the amount of birr 5,800 using deduction method as follows.
Income tax = (gross taxable income x tax-rate) - deduction
Income tax = 5,800 x 25% - 565
= Birr 885.
The deduction the above table from the income tax-payable computed as follows:
60 = 600*10% - 0 % ( 600 - 0)
142.5 = 1650*15% - 10 %(1650 - 600) - 0 % ( 600 - 0)
302.5 = 3200*20% - 15 %( 3200 - 1650) - 10 %( 1650 - 600) - 0%(600 - 0)
565 = 5250*25% - 20 %( 5250-3200) -15 %( 3200-1650) -10 %(1650-600)-0 %(600-0)
955 = 7800*30% - 25 %( 7800 - 5250) - 20 %( 5250 - 3200) - 15 %(3200 -
1650) - 10 % (1650 - 600) - 0 %( 600 - 0).
b) Pension Contribution:
The employer deducts pension contribution from Permanent employees of an organization 7% of
their monthly basic salary to the government pension trust fund. This amount should be withheld
by the employer from the basic salary of each employee on every payroll and latter be paid to the
respective government body.
c) Other Deductions:
In addition to the above two kinds of deductions from employees earnings, employees may
individually authorize deductions such as deductions to pay health or life insurance premiums, to
pay loans from the employer or credit association to pay for donation or charitable organizations;
contributions to social affairs like "Idir""Equb";etc.
Each of the major other deductions may be put in special column in the payroll register. The sum
of all the above-mentioned deductions (income tax, pension contribution, and other deductions)
gives the total deduction from the gross earnings of an employee.
6. Net-Pay:

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This amount is held in one column of the payroll register representing the excess of gross earnings
over the total deductions of an employee. The column net-pay total shows the grand total around
that will be received by employees. It is called take home pay.
7. Signature:
Unless some other document is used; the payroll sheet may be designed to allow a column of a
signature of the employees after collection of the net-pay.
Major Procedures or Activities Involved in Accounting for Payroll
1. Gathering the necessary data-all the relevant information about every employee should be
gathered.
This activity requires reviewing various documents and to do so some arithmetic work.
2. Including the names of employees along with the gathered data such as earnings, deductions,
and net pays in the appropriate columns of the payroll register.
3. Totaling and proving the payroll register. It must be proved that the grand total earnings equal
to the sum of the grand totals of deductions and net-pays in the register.
4. The accuracy and authenticity of the information summarized in the payroll should be verified
by different person from the one who compiles it.
5. The payroll is approved by the authorized personnel
6. Paying the payroll either in cash or issuing a check for every individual employee for the net
amount payable to each employee.
7. Recording the payment of the payroll and recognition of the withholding tax
liabilities.
8. Recording the payroll tax expense of the employer
9. Paying and recording withholding and payroll tax liabilities to the concerned authority in
our case to the Inland Revenue Authority, on time.
Flow of Data in a Payroll System

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Illustration of a Payroll Register

Addis Garment Factory, a public business organization, pays the salary of its employees according
to the Ethiopian calendar month. The forth-coming data related to the month of January, 2016.
Name of Basic House Hardship OT hours Duration of work
S/N Employee salary Allowance allowance worked
01 Habitamu Belaye 8,600 400 15 Up to 10:00 pm.
02 Fasil Abiy 2,500 200 300 12 6 hours up to 10:00 pm.
6 hours on public holiday
03 Eden Dawit 1,600 - 6 Weekly Rest days
04 Abdi Tekel 500 100 - -
05 Mohamed Ali 900 100 200 20 15 hours on weekly rest
Days & 5 hours during
public holidays
Additional
information
The management of the organization usually expects all workers to work160 hours in a month and
during the month of January, 2017 all workers have done as expected. Besides, all workers of the
organization are permanent employees except Abdi Tekel. Fasil and Habitamu agreed to
contribute monthly of Br 300 each for a charity organization (for Hope project).
Instructions: Based on the above information:
1. Prepare a payroll register for the organization for the month of January, 2017.
2. Record the payment of salary as of January 31, 2017 using cash.
3. Record the payroll tax expense for the month of January.

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4. Record the payment of the claim of the Charitable organization that arose from January, 2017
payroll assuming that the payment was made on February5, 2017.
5. Assuming that the withholding taxes and payroll taxes of the month of January, 2017 have
been paid on February 6, 2017, record the required journal entry.
Solution
1. A payroll is registered in the payroll register. A payroll register is a multi-columnar form
used to organize the payroll data of an organization at the end of each pay period. A
payroll register would include: Employee number, names of employees, earnings of each
employee, deductions, net-pay, and signature. Hence, these inputs should be prepared as
follows.
a) Overtime earning (OT).
OT = OT hours worked X (ordinary hourly rate X OT rate)
Ordinary hourly rate = basic salary required monthly working hours
Name of Basic Required Monthly
S/N Ordinary Hourly Rate
Employee Salary Working Hours
01 Habitamu Belaye 8,600 160 hours Br 8,600/160 =Br 53.75
02 Fasil Abiy 2,500 160 hours Br 2,500/160 = Br
15.625
03 Eden Dawit 1,600 160 hours Br 1,600/160 =Br 10.00

04 Abdi Tekel 500 160 hours Br 500/ 160 =Br 3.125

05 Mohamed Ali 900 160 hours Br 900/160 =Br 5.625

01. Habitamu Belaye

OT= OT hours worked X (ordinary hourly rate X OT rate)
OT= 15 hrs x (Br53.75 x1.25) = Br 1,007.80
02. Fasil Abiy
OT = 6 hrs x (Br15.625x 1.25) = Br 117.19
+ OT= 6 hrs x (Br15.625 x 2.5) = Br 234.38
Br 351.57
03. Eden Dawit
OT = 6hrs x (Br10.00 x 2.0) = Br120.00
04. Mohamed Ali
OT = 15 hrs x (Br5.625 x 2.0) = Br 168.75
+ OT = 5 hrs x (Br 5.625 x 2.5) = Br 70.31
Br 239.06
b) Gross Earnings.

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Gross Earnings: is total amount of money earned by an employee from various sources. Example includes
basic salary, allowance, and overtime.
Gross earnings = Basic salary + Allowance + OT earnings

S/N Name of Basic House Hardship OT Gross

Employee Salary Allowance allowance Earnings Earnings
01 Habitamu Belaye 8,600 400 1,007.80 10,007.8
02 Fasil Abiy 2,500 200 300 351.57 3,351.57
03 Eden Dawit 1,600 - 120.00 1,720
04 Abdi Tekel 500 100 - 600
05 Mohamed Ali 900 100 200 239.06 1,439.06
Total 14,100 800 500 1,718.43 17,118.43
c) Deductions and net pay
Gross Taxable Income =Gross Earnings – Non Taxable Allowances
Pension Contribution = 7% x Basic Salary from employees' basic salary.

S/N Name of Employee Gross Earnings Non Taxable Gross Taxable

Allowances Income
01 Habitamu Belaye 10,007.8 - 10,007.8
02 Fasil Abiy 3,351.57 300 3,051.57
03 Eden Dawit 1,720 - 1,720.00
04 Abdi Tekel 600 - 600.00
05 Mohamed Ali 1,439.06 200 1,239.06
Total 17,118.43 500 16,618.43

01. Habitamu Belaye: Income tax and pension.

Gross Earnings
Income tax=(gross taxable income x tax-rate) – deduction 10,007.80
Income tax = (10,007.8 X 30%) – 955 = Br 2,047.34
Pension contribution = 7% x 8,600 = 602.00
Charity contribution (other deduction) = 300.00
Total Deductions 2,949.34
Net-Pay Br 7,058.46

02. Fasil Abiy

Gross Earning Income Br 3,351.57
Income tax = (3,051.57 X 15%) – = Br 315.24
Pension contribution 142.5
= 7% x 2,500 = 175.00
Charity contribution (other deduction) = 300.00

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Total Deductions 790.24

Net-Pay Br 2,561.33

03. Eden Dawit

Gross Earning Income Br 1,720.00
Income tax = (1,720.00 X 15%) – 142.5 = Br 115.50
Pension contribution = 7% x 1,600 = 112.00
Total Deductions 227.50
Net Pay Br 1,492.50

04. Abdi Tekel

Gross Earning Income Br600.00
Income tax = (600X0%) = 0.00
Pension contribution = no pension (b/c not permanent) = 0.00
Total Deductions 0.00
Net-Pay Br 600.00

05. Mohamed Ali

Gross Earning Income Br1,439.06
Income tax = (1,239.06X10%) – 60* = Br 63.90
Pension contribution = 7%x900 = 63.00
Total Deductions 126.90
Net-Pay Br 1,312.16
*hardship allowance of Mohamed birr 200 is not taxable
2. Record the payment of salary as of January 31, 2017using cash.
Salaries expense………………………. 17,118.43
Income tax payable…………………… 2,541.98
Pension contribution payable …………. 952.00
Charity contribution …………………… 600.00
Cash ……………………………………. 13,024.45
3. Record the payroll tax expense for the month of January.
Payroll tax expense = 11% of basic salary of permanent of employees (from employer)
Payroll tax expense = 11% x 13,600 = 1,496
Payroll tax expense …………………..........1,496
Pension contribution payable ……………. 1,496

From employees = 7% x 13,600 = 952.00

+ From employer= 11% x 13,600 = 1,496.00
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Total pension contribution towards the gov’t pension trust fund = 2,448.00
4. Record the payment of the claim of the Charitable organization that arose from January, 2017
payroll assuming that the payment was made on February5, 2017.
Charity contribution………………… 600.00
Cash ………………………………………... 600.00
5. Assuming that the withholding taxes and payroll taxes of the month of January, 2017 have
been paid on February 6, 2017, record the required journal entry.
Income tax payable……………………… 2,541.98
Pension contribution payable …………… 2,448.00
Cash ………………………………………………..4,989.98
Addis Garment Factory
Payroll Sheet
For the month ended January31, 2017
Total Net-Pay Signature
Earnings Deduction
Deductions
S/No Name of
Basic House Hardship OT Ear- Gross Employment Pension OtherDed-
Employee
Salary Allowance allowance nings Earnings Income-Tax Contribution utions

01 Habitamu B 8,600 400 1,007.80 10,007.8 2,047.34 602.00 300.00 2,949.34 7,058.46

02 Fasil Abiy 2,500 200 300 351.57 3,351.57 315.24 175.00 300.00 790.24 2,561.33

03 Eden Dawit 1,600 - 120.00 1,720 115.50 112.00 - 227.50 1,492.50

04 Abdi Tekel 500 100 - 600 0.00 0.00 - 0.00 600.00

05 Mohamed A 900 100 200 239.06 1,439.06 63.90 63.00 - 126.90 1,312.16
Total 14,100 800.00 500 1,718.43 17,118.43 2,541.98 952.00 600.00 4,093.98 13,024.45

3.3.4. Internal Controls for Payroll Systems.

The cash payment controls, internal control of cash, also apply to payrolls. Some examples of
payroll controls include the following:
If a check-signing machine is used, blank payroll checks and access to the machine should be
restricted to prevent their theft or misuse.
The hiring and firing of employees should be properly authorized and approved in writing.
All changes in pay rates should be properly authorized and approved in writing.
Employees should be observed when arriving for work to verify that employees are “checking
in” for work only once and only for themselves. Employees may “check in” for work by using a
timecard or by swiping their employee ID card.
Payroll checks should be distributed by someone other than employee supervisors.
A special payroll bank account should be used.
3.4 Presentation of Liabilities on the Balance Sheet

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Conceptually, accompany should report its three main balance sheet elements-assets, liabilities,
and equity-inhomogeneous classes. This disclosure is helpful to users in assessing the nature,
amount, timing, and liquidity of its resources and obligations. A company can report liabilities and
assets as items in its balance-sheet in various ways.
Current liabilities are the first category under liabilities on the balance sheet. Each of the principal
types of current liabilities is listed separately.
In addition, companies disclose the terms of notes-payable and other key information about the
individual items in the notes to the financial statements.
Companies seldom list current liabilities in the order of liquidity. The reason is that varying
maturity dates may exist for specific obligations such as notes payable.
A more common method of presenting current liabilities is to list them by order of magnitude,
with the largest ones first.
Items within the current liability section typically maybe listed:
(1) in the order of their average length of maturity,
(2) according to amount (largest to smallest), or
(3) in the order of liquidation preference- that is, in the order of their legal claims against assets. A
Popular way of presenting these items is as follows:
Accounts payable
Notes - payable.
Accrued liability items
Unearned revenue items
Other current liabilities
Other Current Liabilities may include:
 Accrued payroll
 Accrued interest
 Accrued taxes
 Miscellaneous, etc.
A company includes any major issue affecting its current liabilities in a note to its financial
statements. This presentation is made so that the notes and other supplemental information about
current liabilities meet the requirement of full-disclosure.
To illustrate, look at balance sheet of ABC Company showing how it reports its current
liabilities

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Summary.
Liabilities are the probable future sacrifices of economic benefits arising from present
obligations of accompany to transfer assets or provide services in the future as a result of past
transactions or events.
- A liability involves a responsibility that will be settled by the probable future transfer or use of
assets at a specified or determinable date, on occurrence of a specific event, or on demand.
- The responsibility obligates the company so that it has little or no discretion to avoid the future
sacrifice.
- The transaction or other event obligating the company has already happened.
Current liabilities are obligations of accompany that it expects to liquidate by using existing
current assets or creating other current liabilities within one year or the normal operating cycle,
whichever is longer. The usual criterion is one year.
Companies record obligations in the form of written notes as notes payable. Notes-payable are
often used instead of accounts payable because they give the lender formal proof of the obligation
in case legal remedies are needed to collect the debt.
Notes may be issued to purchase merchandise or other assets. Notes may also be issued to
creditors to satisfy an account payable created earlier.
Companies often have a portion of long-term debt that comes due in the current year. That amount
is considered a current liability.
Accounting systems for payroll and payroll taxes are concerned with the records and reports

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associated with the employer-employee relationship. It is important that the accounting system
provide safeguard to ensure that payments are in accord with management’s general plans and its
specific authorizations.
An employer paying employment income to an employee who is subject to employment income
tax shall withhold tax from the gross amount of each payment of employment income at the rate
applicable. In Ethiopia income tax is charged on the gross earnings of the employee at the rates
indicated under Schedule A of the Proclamation No. 979/2016-Income tax proclamation. An
employee shall not be allowed a deduction for any expenditure incurred in driving employment
income. Employment income shall not include exempt income.
Current liabilities are the first category under liabilities on the balance sheet. Each of the principal
types of current liabilities is listed separately.
In addition, companies disclose the terms of notes-payable and other key information about the
individual items in the notes to the financial statements.
Companies seldom list current liabilities in the order of liquidity. The reason is that varying
maturity dates may exist for specific obligations such as notes payable.

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