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CHAPTER 6

CHAPTER 6. Payroll Accounting 2013 Bernard J. Bieg and Judith A. Toland. ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS. Developed by Lisa Swallow, CPA CMA MS. Learning Objectives. Record payrolls in appropriate records

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CHAPTER 6

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  1. CHAPTER 6 Payroll Accounting 2013 Bernard J. Bieg and Judith A. Toland ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS Developed by Lisa Swallow, CPA CMA MS

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

  3. Accounting for Payroll Transactions 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 LO-1

  4. Recording Gross Payroll & Withholdings Enter information into accounting system • Gross payroll is debited • Each withholding tax is credited to a liability • All other payroll deductions are liabilities as well LO-1

  5. Methods of Paying Wages & Salaries • 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 • Many employees who do not have bank accounts use these • Electronic paystubs alleviate need for paper paystubs • 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 LO-3

  6. Journal Entries to Record Payroll • 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). LO-3

  7. Journal Entry #1 • Debit Wage Expense for gross payroll • Credit each withholding account - they are all liabilities • Credit cash (or wages payable) for net payroll • Journal entry #1 • Wage Expense 1,845.00 • FICA Taxes Payable - OASDI 77.49 • FICA Taxes Payable - HI 26.75 • Employees FIT Payable 174.00 • SIT Payable 50.00 • Group Insurance Payments W/H 191.00 • Cash 1,325.76 LO-3

  8. Journal Entry #2 • Debit Payroll Tax Expense for total of all payroll taxes that employer pays • Credit each account - they are all liabilities • Calculate all employer taxes utilizing varying wage bases and percentages • Journal entry #2 • Payroll Tax Expense 190.89 • FUTA Taxes Payable 3.69 • SUTA Taxes Payable 46.06 • FICA Taxes Payable - OASDI 114.39 • FICA Taxes Payable - HI 26.75 LO-3

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

  10. Workers’ Compensation Insurance • 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 LO-5

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