PAYROLL ACCOUNTING Chapter 11 2013 CPP REVIEW CLASS CHAPTER 11

1. PAYROLL ACCOUNTING Chapter 112013 CPP REVIEW CLASSCHAPTER 11 Carmela Miller, CPP howardcarmmiller@msn.com

2. 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

3. 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

4. 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.

5. 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.

6. 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.

7. 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

8. Transaction Flow

9. 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

10. Chart of Normal Account Balances

11. Table 11-2 Any Asset or Expense Account Debit Credit Increases Decreases Any Liability or Revenue Account Debit Credit Decreases Increases

12. 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

13. Transactions Cont. NOTICE: • Chronological Recording of daily transactions • Double Entry Accounting • Debits must = Credits • Compound Entry

14. 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.

15. Chart of Accounts • Asset Accounts • Liability Accounts • Revenue Accounts • Expense Accounts • Equity Accounts

16. 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

17. 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

18. Type of Accounts Equity Accounts – The net worth of the company, or the shareholders’ equity. • Retained Earnings • Capital Accounts

19. Type of Accounts Revenue Accounts – Income recognized for goods sold and services rendered. • Gross Revenue • Earned Income • Services REVENUE ACCOUNTS: DEBIT = DECREASE CREDIT = INCREASE

20. 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

21. 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)

22. Ward’s ConsultingTrial BalanceDecember 31, 2012

23. Accruals and Reversals Matching Principle – Expenses should always be posted against Revenues they produced. Accruals & Reversals – Record items in the period that they occurred

24. Financial Statement Income Statement Revenue minus Expenses for a period of time. Balance Sheet Assets equals Liabilities plus Equity at a point in time.

25. Balance Sheet

26. Profit and Loss Statement

27. Expenses by Vendor

28. General Ledger

29. 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 ____________

30. 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.