Current Liabilities and Payroll

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Current Liabilitiesand Payroll
AGRICULUTURAL TECHNICAL INSTITUTEBUS TEC T101
ACCOUNTING
Chapter 11, Part 2
2
ACCOUNTING CONCEPTS

• CH 1 ACCT THE BUS ENVIRONMENT
• CH 2 RECORDING TRANSACTIONS
• CH 3 MEASURING INCOME ADJUSTMENTS
• CH 4 COMPLETING THE ACCTING CYCLE
• CH 5 MERCHANDISE OPERATIONS
• CH 6 MERCHANDISE INVENTORY
• CH 7 SPECIAL JOURNALS
• CH 8 CONTROLLING CASH
• CH 9 ACCTS NOTES RECEIVABLES
• CH 10 PLANT ASSETS
• CH 11 CURRENT LIABILITIES PAYROLL
• CH 17 CASH FLOW

3
LEARNING OBJECTIVES
CH 11 Current Liabilities Payroll

• AFTER COMPLETING THIS LESSON, THE STUDENT SHOULD
  BE ABLE TO

1. Acct For Curr Liab Of Known Amt 2. Acct For
Curr Liab Of Unknown Amt 3. Compute Payroll
Amounts 4. Record Payroll Transactions 5. Use a
Payroll System 6. Report Curr Liab on the Balance
Sheet
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Payroll
Compute Payroll Amounts.
442
3
OBJ

• Straight time is the base rate paid to employees
  for a set number of hours.

Over time rate is the base rate times 1.5 for
hours over base hours .
Dean worked 46 hours during 1st week of June and
his wage is 10 per hour.
40 hrs
400 Straight Pay
X 10/hr
6 hrs
X 15/hr
90 Overtime Pay
490 Gross Pay
-

Gross Pay
Deductions
Net Pay
5
Compute Payroll Amounts.
442
3
OBJ
Employee Payroll Deductions
Deductions from the employees gross pay
Required
Gross Pay 490.00
- Federal Income Tax 12 X 490 -58.80
- OH Inc Tax 2.8 490 X 2.8 -13.72
- City Income Tax .0 X 490 0
Soc Sec (FICA) (6.2 of 1st 90,000 of pay
-30.38

• Soc Sec Health Ins 1.45 of all earnings)

- 7.10
Optional
Insurance, union dues, charity contrib
- 2.00
Take Home Net Pay 378.00
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Employer Payroll Taxes Expense
Compute Payroll Amounts.
444
3
OBJ
Deductions from the employers revenue

• Soc Sec (FICA) tax match employee amt

St unemployment compensation tax
5.4 on 1st 7,000 of each employees annual pay
Fed unemployment compensation tax
0.8 on 1st 7,000 of each employees annual pay
The govt uses the money to pay unemployment
benefits to people who are out of work.
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Breakdown of Payroll Costs
Compute Payroll Amounts.
445
3
OBJ
Employer payroll taxes to government 110
Employer cost of health care to insurance co. 90
Employer disburses 1,200
Net pay to employee 750
Employee payroll taxes to government 230
Employee union dues 20
Employee Gross Pay 1,000
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A. Salary Expense
Record Payroll Transactions
445
4
OBJ

• Employers Salary exp is gross pay of all
  employees
• Employees pay their own income and FICA taxes as
  well as union dues.
• The employer serves as a collecting agent and
  sends these amts to the govt union.

Salary Expense Employee Income Tax
Payable FICA Tax Payable Employees Union Dues
Payable Salary Payable to Employees (take-home
pay)
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B. Employer Payroll Tax Expense
Record Payroll Transactions
445
4
OBJ
Payroll Tax Expense FICA Tax Payable State
Unemployment Tax Payable Federal Unemployment
Tax Payable
C. Employer Benefits Expense

• Health Insurance Expense for Employees
• Life Insurance Expense for Employees
• Pension Expense
• Employee Benefits Payable

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Example
Record Payroll Transactions
445
4
OBJ

• Assume
• s 10,000 Gross Salary s Pays 800 for Health
  Ins.
• s 12 Income tax rate s Pays 200 for Life
  Ins.
• s Union Dues 200 s Pays 500 for
  Pension
• (FICA 7.65, St Unemp 5.4, Fed Unemp 0.8)

Step 1 Record Salary Expense
Salary Expense 10,000 Employee Income Tax
Payable 1,200 FICA Tax Payable
(6.21.45)10,000 765 Employees Union
Dues Payable 200 Salary Payable to
Employees 7,835
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Example, continued
Record Payroll Transactions
445
4
OBJ
Step 2 Record Employers Payroll Tax Expense
Payroll Tax Expense 1,385 FICA Tax
Pay. (6.21.45)10,000 765 State
Unemp. Tax Pay. (5.410,000) 540 Federal
Unemp. Tax Pay. (0.810,000) 80
Step 3 Record Benefits Expense

• Health Ins. Expense for Employees 800
• Life Ins. Expense for Employees 200
• Pension Expense 500
• Employee Benefits Payable 1,500

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Payroll System Components
Use A Payroll System
446
5
OBJ
a. Payroll Record...aka.. Payroll Journal

• It lists payroll data for each employee.
• It serves as a check register.
• It provides information for recording payroll
  expenses and related withholdings.

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Payroll Record
Use A Payroll System
446
5
OBJ
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Payroll Record Example
Use A Payroll System
446
5
OBJ

• John worked 45 hours and his rate is 20 per
  hour. He gets time half for overtime.
• His federal income tax is 110
• Assume 8 for FICA
• His health insurance cost is 40
• Fill in the payroll record

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Payroll Record Example
Use A Payroll System
446
5
OBJ
150
110
76
40
724
John
45
800
950
226
Insert when paid
45
800
150
950
110
76
40
226
724
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Use A Payroll System
446
5
OBJ
b. Payroll Bank Account

• 1. When companies use a payroll bank acct, the
  company draws a ck for net amt of salary payable
  to employees on its reg bank acct
• 2. The company deposits this check in the special
  payroll bank account.
• 3. The company writes paychecks to employees out
  of the payroll account.
• 4. When the paychecks clear the bank, the payroll
  account has a zero balance.
• 5. Disbursing paychecks from a separate bank
  account isolates net pay for analysis and control.

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Use A Payroll System
446
5
OBJ
c. Payroll Checks
d. Earnings Record
Accounting tool used to help prepare tax reports
for the IRS
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Recording Cash Disbursements
Use A Payroll System
449
5
OBJ
Using our previous example below, how would
record the cash payment of payroll?
Salary Expense 10,000 Employee Income Tax
Payable 1,200 FICA Tax Payable
(6.21.45)10,000 765 Employees Union
Dues Payable 200 Salary Payable to
Employees 7,835
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Use A Payroll System
449
5
OBJ

• When the employer pays the employees, the
  company debits Salary Payable to Employees and
  credits Cash.
• The liabilities to the government, unions, and
  other parties is also debited when cash is paid.
• The amounts the employer pays for employee
  benefits is debited when the cash is paid.

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Use A Payroll System
449
5
OBJ
Salary Payable to Employees 7,835 Cash
7,835 Employee Income Tax Payable
1,200 FICA Tax Payable (7652)
1,530 Employee Union Dues Payable 200 State
Unemp. Tax Pay. 540 Federal Unemp. Tax
Pay. 80 Cash 3,550 Hea
lth Ins. Payable for Employees 800 Life Ins.
Payable for Employees 200 Pension Payable
for Employees 500 Cash 1,500
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Controls for Efficiency
Use A Payroll System
449
5
OBJ

• making payroll disbursements from one payroll
  account in one month and from another the next
• following established policies for hiring and
  firing employees
• complying with government regulations
• testing employees for their interest in the job
  and their skills to perform the job

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Controls for SafeguardingPayroll Disbursements
Use A Payroll System
449
5
OBJ

• Large organizations must establish controls to
  ensure that payroll disbursements are made only
  to legitimate employees.
• Duties of hiring and firing should be separated
  from the duties of accounting for payroll and
  distributing paychecks.

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Controls for SafeguardingPayroll Disbursements
Use A Payroll System
449
5
OBJ

• Requiring an identification badge bearing an
  employees photograph also helps internal
  control.
• A formal time-keeping system helps ensure that
  employees have actually worked.

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Report Current Liabilities
Report curr liab on Bal Sht
450
6
OBJ

• Companies report curr liab on the balance sheet.
• current liab of known amount (payroll)
• current liab that must be estimated (warranties)

At the end of the year, companies report the
amount of payroll liabilities owed to all
parties. The liability at year end is the amount
of the payroll expense that is still unpaid.
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Report curr liab on Bal Sht
450
6
OBJ

• Current Liabilities
• Accounts Payable xxx
• Salary Benefits Payable xxx
• Unearned Revenue xxx
• Interest Payable xxx
• Current Portion of L-T Debt xxx
• Total Current Liabilities xxx

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Review of Topics
CH 11 Current Liabilities Payroll
1. Acct For Curr Liab Of Known Amt 2. Acct For
Curr Liab Of Unknown Amt 3. Compute Payroll
Amounts 4. Record Payroll Transactions 5. Use a
Payroll System 6. Report Curr Liab on the Balance
Sheet