Multiple Choice
Which of the following is derived by subtracting the cost of goods sold (COGS) from net sales?
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4. Merchandising Operations
Net Sales
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Which of the following statements about retirement savings withheld from employee paychecks is true?
A
They are considered an expense to the employee on the employer's financial statements.
B
They are recorded as a liability by the employer until remitted to the retirement plan.
C
They increase the employer's net sales.
D
They are immediately recognized as revenue by the employer.
Verified step by step guidance1
Understand the nature of retirement savings withheld from employee paychecks. These are amounts deducted from employees' gross pay to be contributed to a retirement plan, such as a 401(k).
Recognize that these withholdings are not an expense to the employer. Instead, they are part of the employee's compensation that the employer is responsible for remitting to the retirement plan.
Identify how these withholdings are treated in the employer's financial statements. Since the employer holds these funds temporarily before remitting them to the retirement plan, they are recorded as a liability on the employer's balance sheet.
Clarify that these withholdings do not affect the employer's net sales or revenue. They are not related to the employer's income-generating activities but are instead part of payroll processing.
Conclude that the correct statement is: 'They are recorded as a liability by the employer until remitted to the retirement plan.' This reflects the employer's obligation to transfer the withheld funds to the appropriate retirement account.
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