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PAYROLL ACCOUNTING Chapter 11 2013 CPP REVIEW CLASS CHAPTER 11 . Carmela Miller, CPP howardcarmmiller@msn.com. Payroll Accounting Agenda . Understanding Transaction/Flow Chart of Accounts Debit/Credit (Increase vs. Decrease) Type of Accounts Accruals/Reversals T-Accounts

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payroll accounting chapter 11 2013 cpp review class chapter 11

PAYROLL ACCOUNTING Chapter 112013 CPP REVIEW CLASSCHAPTER 11

Carmela Miller, CPP

howardcarmmiller@msn.com

payroll accounting agenda
Payroll Accounting Agenda
  • Understanding Transaction/Flow
  • Chart of Accounts
  • Debit/Credit (Increase vs. Decrease)
  • Type of Accounts
  • Accruals/Reversals
  • T-Accounts
  • Financial Statements
  • Final Exam/Review
accounting principles
Accounting Principles

Accounting standards are set by FASB (Financial Accounting Standards Board) which sets standards for transactions and are known as GAAP (Generally Accepted Accounting Principles)

  • Business entity concept
  • Continuing concern concept
  • Time period concept
  • Cost principle
  • Objectivity principle
  • Matching principle
  • Realization principle
  • Consistency principle
account classifications
Account Classifications

5 Types of Accounts

  • Assets What are some types of these Accounts?
  • Liabilities
  • Expenses
  • Revenue
  • Equity

Payroll is usually only affected by Assets, Liabilities or Expenses.

recording transactions
Recording Transactions

All of a company’s transactions are recorded and classified into various accounts using a “Double Entry” system that is based on 2 equations:

  • ASSETS-LIABILITIES = EQUITY

This equation provides the basis for the financial statement called a Balance Sheet. Balance Sheet shows the company’s financial position at a particular point in time.

recording transactions1
Recording Transactions

2. REVENUE – EXPENSES = NET INCOME

+ NET INCOME-INCOME DISTRIBUTED + CONTRIBUTED CAPITAL = EQUITY

This equation is the basis for 2 financial statements, the INCOME STATEMENT and the STATEMENT OF RETAINED EARNINGS.

examples of transactions
Examples of Transactions
  • Taking an order to purchase a truck
  • Manufacture of the truck
  • Shipping of the Truck
  • Receiving payment of the truck
  • Recording Depreciation of the truck
debits and credits
Debits and Credits

Debits are recorded on the Left Side of an Account

Credits are recorded on the right side of an Account

Debit Credit

table 11 2
Table 11-2

Any Asset or Expense Account

Debit Credit

Increases Decreases

Any Liability or Revenue Account

Debit Credit

Decreases Increases

transactions
Transactions

Name JE #_________

Date

Date Acct Description DR CR

1/15/20091400 Computer Equip 5,200

1000 Cash 5,200

To Record purchases of 5 computer monitors

1/18/20092000 Accounts Payable 1,000

1000 Cash 1,000

To Record payment of A/P Chairs

1/22/2009 6400 Travel & Entertainment 550.00

2000 Accts Payable – Visa 550.00

To Record Hotel Expenses

1/29/2009 6110 Payroll Expenses 30,000

6120 Benefits 20,000

6180 Training 12,500

2100 Payroll Liabilities 62,500

CHECK 69,250 69,250

transactions cont
Transactions Cont.

NOTICE:

  • Chronological Recording of daily transactions
  • Double Entry Accounting
  • Debits must = Credits
  • Compound Entry
general ledger
General Ledger
  • Record of business transactions by account to which journal entries are periodically transferred.
  • The GL keeps a running total of all the entries and period-to-date balance for all the company’s accounts.
  • In most businesses there are a number of subsidiary ledgers that make up the General Ledger. (A/P, A/R, Billing, etc.)

Entries are not posted to the GL without first being entered into a Journal/Subsidiary ledger to ensure both debit and credit entries have been made.

chart of accounts
Chart of Accounts
  • Asset Accounts
  • Liability Accounts
  • Revenue Accounts
  • Expense Accounts
  • Equity Accounts
type of accounts
Type of Accounts

Asset Accounts – Anything owned by the company

  • Computers
  • Payroll Software
  • Equipment
  • Furniture
  • Cash in the payroll checking account
  • Petty Cash

ASSET ACCOUNTS: DEBIT = INCREASE

CREDIT = DECREASE

type of accounts1
TYPE OF ACCOUNTS

Liability Accounts – Debts owed by the company

  • Taxes withheld but not yet paid
  • Contributions to a company benefit plan not yet paid
  • A leasing contract for a payroll hardware/software system
  • Accounts Payable

LIABILITY ACCOUNTS: DEBIT = DECREASE

CREDIT = INCREASE

type of accounts2
Type of Accounts

Equity Accounts – The net worth of the company, or the shareholders’ equity.

  • Retained Earnings
  • Capital Accounts
type of accounts3
Type of Accounts

Revenue Accounts – Income recognized for goods sold and services rendered.

  • Gross Revenue
  • Earned Income
  • Services

REVENUE ACCOUNTS: DEBIT = DECREASE

CREDIT = INCREASE

type of accounts4
Type of Accounts

Expense Accounts – Cost of Goods or services used in the process of obtaining revenue for the company.

  • Salaries Expense – Employees
  • Benefit Expense
  • Cost of employer paid benefit programs
  • Lease Expense – payments for

hardware/software system

  • Depreciation Expense – Equipment

EXPENSE ACCOUNTS: DEBIT = INCREASE

CREDIT = DECREASE

chart of accounts1
Chart of Accounts

Balance Sheet

Asset Accounts (D)

Liability Accounts (C)

Equity Accounts (C)

ASSETS = LIABILITY + EQUITY

Profit/Loss (P&L)

Revenue Accounts (C)

Expense Accounts (D)

REVENUE – EXPENSES = PROFIT (LOSS)

accruals and reversals
Accruals and Reversals

Matching Principle – Expenses should always be posted against Revenues they produced.

Accruals & Reversals – Record items in the period that they occurred

financial statement
Financial Statement

Income Statement

Revenue minus Expenses for a period of time.

Balance Sheet

Assets equals Liabilities plus Equity at a point in time.

test your knowledge
Test your Knowledge
  • Classify each item that follows as an asset, liability or owner’s equity
  • Cash __________
  • Loan Payable to a bank _________
  • Delivery Equipment _________
  • Account Payable to a creditor __________
  • Office Furniture _____________
  • Owner’s Financial Interest __________
  • Petty Cash ___________
  • Mortgage Payable to a bank ___________
  • FUTA Taxes Payable ____________
payroll accounting
Payroll Accounting

Review:

The Chapter 11, go over what credits and debits, know what are assets, liabilities and owner’s equity. Review what is a normal balance for your accounts.