ANALYZING

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CHAPTER 6
Payroll Accounting 2009 Bernard J. Bieg and
Judith A. Toland

• ANALYZING JOURNALIZING
• PAYROLL TRANSACTIONS

Developed by Lisa Swallow, CPA CMA MS
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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

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Payroll Register

• Payroll register lists employees in rows and
  shows following information for each
• Gross wages
• Taxes withheld and other deductions
• Net pay
• Payroll register shows (in columns)
• Total of gross wages, each deduction and net
• When completed, should foot or prove payroll
  register by ensuring that columns and rows all
  total to bottom right hand number
• Use payroll register to journalize

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Employees Earnings Record

• Employee Earnings Record used to track cumulative
  totals (wages and taxes)
• Enter row of data each pay period
• Important because different wage caps for FUTA,
  SUTA and OASDI taxes
• Need to track cumulative totals in order to issue
  W-2s and do quarterly SUTA reports
• Prepare payroll analyses - various internal and
  external reports

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Recording Gross Payroll Withholdings

• Next screens show how to enter information into
  accounting system
• Gross payroll is debited
• Each withholding tax is a liability
• Advanced EIC reduces FIT Payable
• All other payroll deductions are liabilities as
  well

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Other Deductions from Payroll

• Any deduction that the ER makes from EE 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

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Garnishments

• A creditor can, through the courts, seek
  repayment of his/her money by garnishment
• Employer is required to comply with garnishment
  order
• ER must withhold funds from EEs paycheck and
  submit it to appropriate authorities
• Child support (see next slide)
• Creditor garnishments limited depending upon
  state
• Administrative wage and student loan garnishments
  limited to 15 of disposable earnings

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Child Support

• Family Support Act of 1988 requires immediate
  withholding for child- support payments
• ER can withhold a state mandated fee for
  administration
• Some states now require electronic submission of
  garnished child support payments
• Maximum amount that can be withheld from a
  persons weekly disposable earnings varies
  according to different support orders, but can be
  as high as 50-65 of disposable earnings

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Pension Retirement Contributions

• Pension plans that involve employee contributions
  result in liability for the employer
• Recorded in payroll entry
• Pension Protection Act of 2006 gives company
  ability to automatically enroll EEs in companys
  plan and deduct contributions from pay

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Methods of Paying Wages/Salaries

• Cash/check
• Electronic payment methods
• EFTS (Electronic funds transfer system)
• Distribute electronic pay stub
• Pay Cards
• Cards that allow ER to deposit payroll into
  prepaid card card then utilized like debit or
  credit card
• As of 2006, 30 states allow their use
• Final pay
• Many states set time limit between termination
  and final wage pay out
• CA and MI require immediate payment if EE is fired

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Journal Entries to Record Payroll

• Journal Entry 1 - Record gross wages,
  withholdings and net pay
• Journal Entry 2 - Record employer 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 days wages, for example).

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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 1845.00 OASDI
Payable 114.39 HI Payable 26.75 FIT
Payable 174.00 SIT Payable
50.00 Insurance Payable 191.00 Cash
1,288.86
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Journal Entry 2

• Debit Payroll Tax Expense for total of all
  payroll taxes that ER pays
• Credit each account - they are all liabilities

Calculate all employer taxes utilizing varying
wage bases and percentages Journal entry
2 Payroll Tax Expense 188.92 FUTA Payable
1.72 SUTA Payable 46.06 OASDI
Payable 114.39 HI Payable 26.75
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Recording Deposit of Payroll Taxes

• Look in general ledger, in each applicable
  liability account, for amount due
• Deposit 941 taxes
• Note Dont forget to double
• OASDI and HI
• Deposit state income tax
• Deposit SUTA

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Workers Compensation

• 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 are calculated based on employment
  classification - per 100 of 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

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Journal Entry forWorkers Compensation

• Debit Work Comp. Insurance Expense for premium
  paid
• Credit Cash (if paying) or Insurance Payable
  (if accruing)

Journal entry Workers Comp. Insurance
Expense 99.67 Cash or Insurance Payable 99.67
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Journalize Period-End Accruals

• Accrued wages should be recorded for wages earned
  by workers but not yet paid
• To record unpaid wages
• Wage Expense 1589.96
• Wages Payable 1589.96
• Accrued vacation pay should be recorded for
  amount of vacation pay owed employees
• Many ERs now merging sick time and vacation time
  
• Vacation Benefits Expense 520.00
• Vacation Benefits Payable 520.00

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Summary of Accounts Used
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Summary of Accounts Used