Accounting Chapter 14

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Accounting - Chapter 14

• Preparing Payroll Records

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Terms to Know...

• Salary
• money paid for an employees services
• Pay Period
• period covered by a salary
• can be weekly, every other week, by monthly (two
  set days per month)
  
• Payroll
• total amount earned by all employees
• reduced by state/fed taxes, insurance, other
  deductions

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Payroll Time Cards

• Keep an accurate record of time worked
• Most common workers punch in/out
• Steps to figure hours worked
• figure normal hours worked
• calculated by rounding minutes to the nearest
  quarter hour
  
• calculate overtime hours
• hours worked past 40 in a given week (most)
• other businesses may figure differently
• add regular and overtime hours to find total
  hours worked

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Calculating Total Earnings

• Total Earnings
• total pay earned before deductions are taken out
• a.k.a. gross pay
• Figure regular earnings
• regular hours x regular rate
• Figure overtime earnings
• overtime rate is time-and-a-half
• overtime rate regular rate x 1.5
• overtime earnings overtime rate x overtime
  hours
  
• Figure total earnings
• regular earnings overtime earnings

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Payroll Taxes

• The taxes on the payroll of a business
• Determined by total earnings
• Must be kept accurate
• Considered a liability of the business until they
  are paid to the government
  
• employer takes taxes out of your checks and holds
  onto it until a payment is made to the
  state/federal/local governments

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Employee Income Tax

• Form W-4
• Employees Withholding Allowance Certificate
• determines the amount of income tax withheld from
  your checks
  
• Determined by three factors
• total earnings
• marital status (married people pay less)
• number of withholding allowances
• a deduction from total earnings for each person
  legally supported by the taxpayer
  
• the more withholding allowances claimed, the less
  income tax withheld from each check
  
• An income tax table is used to find the amount of
  employee income tax withheld.
  

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Employer/Employee Social Security Tax

• Includes three programs
• old-age, survivors, disability benefits
• Medicare (federal health insurance for sr.
  citizens)
  
• grants given to states for temporary unemployment
  and welfare payments
  
• All employees must have a social security number

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Employer/Employee Social Security Tax - Three
Types

• FICA Tax
• Federal Insurance Contributions Act
• paid by BOTH employees/employers
• 8 of total earnings
• 6.5 of which is for old-age, survivors, and
  disability payments
  
• 1.5 of which is for Medicare
• ALL employees pay this
• employer matches what the employees pay
• Paid only until the tax base is met

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Payroll Records are kept for four years.

• Federal Unemployment Tax
• used for state and federal administrative
  expenses of the unemployment program
  
• paid by employers only
• State Unemployment Tax
• state tax used to pay benefits of unemployed
  workers
  
• paid by employers only
• rules/amounts differ by state

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Steps in Completing a Payroll Register

• A business form to record payroll information
• Summarizes total earnings and withholdings of ALL
  employees

• Record Earnings
• regular, overtime, and total
• Record deductions
• federal income tax
• FICA
• health insurance
• other (bonds, contributions, etc.)
• total deductions

• Calculate net pay
• total earnings minus total deductions
• Complete the payroll
• columns 123
• columns 4,5,6,78
• columns 893

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Payroll Checks

• Employees paid from a special checking account
  w/special checks
  
• A check for the total net pay is written from the
  general checking account and put into the payroll
  checking account to cover the amount of the
  employee checks.
• The separate payroll checking account is
  necessary to protect and control payroll payments

• Information for the employees paychecks is taken
  from the payroll register.
  
• Automatic Check Deposit
• check is directly deposited into an employees a
  bank account
  
• Electronic Funds Transfer (EFT)
• a computerized cash payment system
• funds are sent electronically to an employees
  bank account

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Employee Earnings Records

• A business form used to record details affecting
  payments made to an employee
  
• Shows payroll information for one employee
• Includes
• earnings
• deductions
• net pay
• accumulated earnings (yearly)

• Information is recorded each pay period
• Accumulated earnings allows employers to
• complete tax forms
• determine if the tax base (for FICA) has been met