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CHAPTER 6

CHAPTER 6. Payroll Accounting 2012 Bernard J. Bieg and Judith A. Toland. Developed by Lisa Swallow, CPA CMA MS. ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS. Learning Objectives. Record payrolls in appropriate records

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CHAPTER 6

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  1. CHAPTER 6 Payroll Accounting 2012 Bernard J. Bieg and Judith A. Toland Developed by Lisa Swallow, CPA CMA MS ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS

  2. Learning Objectives • Record payrolls in appropriate records • Understand various deductions taken from employees’ gross pay • Journalize entries to record payroll • Post to general ledger • Explain recording of payroll tax deposits • Understand need for end-of-period adjustments

  3. Accounting for Payroll Transactions LO-1 • Payroll requires entering data (in order) in the following places: • Payroll Register • Employee Earnings Records • General Journal • Journalize gross wages and withholdings • Journalize payroll taxes and workers’ compensation • Journalize period-end accruals • Post to General Ledger

  4. Recording Gross Payroll & Withholdings LO-2 • Any deduction that the employer makes from employee’s paycheck goes into a liability account (because they owe it to someone) such as: • Group life insurance premiums • Health insurance premiums • Purchase government savings bonds • Union dues • Deferred compensation (contributions to pension plan) • Child support/other garnishments

  5. Methods of Paying Wages & Salaries LO-3 • Check • Sometimes separate payroll account maintained to make bank reconciliation process easier • Electronic payment methods • EFTS (electronic funds transfer system) • Electronic records created showing bank, account # and net pay • Pay cards allow employer to deposit payroll into prepaid card • Card utilized like debit or credit card • Over 25% of employees who do not have bank accounts use these • Final pay • Many states set time limit between termination and final wage pay out (depends upon whether worker left voluntarily) • CA and MI require immediate payment if employee is fired

  6. Journal Entries to Record Payroll LO-3 • Journal Entry #1- Record gross wages, withholdings and net pay • Journal Entry #2 - Record employer’s payroll tax expense These two journal entries are always the same in format. You must make both of them every time you issue any paycheck (even if cutting a check for one day’s wages, for example).

  7. Journal Entry #1 • Journal entry #1 • Wage Expense 1,845.00 • FICA Taxes Payable - OASDI 114.39 • FICA Taxes Payable - HI 26.75 • Employees FIT Payable 174.00 • SIT Payable 50.00 • Group Insurance Payments W/H 191.00 • Cash 1,288.86 LO-3 • Debit Wage Expense for gross payroll • Credit each withholding account - they are all liabilities • Credit cash (or wages payable) for net payroll

  8. Journal Entry #2 • Calculate all employer taxes utilizing varying wage bases and percentages • Journal entry #2 • Payroll Tax Expense 188.92 • FUTA Taxes Payable 1.72 • SUTA Taxes Payable 46.06 • FICA Taxes Payable - OASDI 114.39 • FICA Taxes Payable - HI 26.75 LO-3 • Debit Payroll Tax Expense for total of all payroll taxes that employer pays • Credit each account - they are all liabilities

  9. Recording Deposit of Payroll Taxes LO-5 Look in general ledger for amounts due • Deposit 941 taxes • Deposit state income tax • Deposit SUTA

  10. Workers’ Compensation Insurance LO-5 • Workers’ compensation is an expense for the employer, who is required to purchase insurance to protect employees against work related injuries/disabilities • Laws differ by state • Premiums often calculated based on employment classification – stated in terms of $100 per payroll • Pay premiums in advance based on projected wages • Then, at year-end, report actual wages and pay additional premium or may receive credit towards next year

  11. Journalize Period-End Accruals LO-6 • Accrued wages should be recorded for wages earned by workers, but not yet paid Journal entry Wage Expense 1,589.96 Wages Payable 1,589.96 • Accrued vacation pay should be recorded for amount of vacation pay owed employees - many employers now merging sick time and vacation time Journal entry Vacation Benefits Expense 520.00 Vacation Benefits Payable 520.00 Note: Not necessary to accrue payroll tax expense at year-end

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