Payroll Accounting

1
Chapter 11

• Payroll Accounting

2
11-1 Gross Receipts Method
The gross receipts method takes all the gross
receipts for employees and multiplies that number
by 8 to determine if there is a tip shortfall.
Problem Data
Backyard Grill Restaurant Backyard Grill Restaurant Backyard Grill Restaurant
Employees Gross Receipts Tips Reported
1 26,000 1,300
2 42,000 2,300
3 35,000 3,000
4 28,000 1,200
5 38,000 3,200
6 45,000 4,600
214,000 15,600
Using the provided data, determine the amount of
tips that should be allocated to each employee
using the gross receipts method.
3
11-1 Gross Receipts Method (continued)
Step 1 Determine the amount of shortfall to be
allocated.
Indirectly Tipped Employees 0
Total actual tips reported 15,600
Total tips according to 8 rule (214,000 x 8) 17,120.00
Total actual tips reported 15,600
Shortfall to be allocated 1,520
Total tips according to 8 rule (214,000 x 8) 17,120.00
Tips reported by indirectly tipped employees -
Tips that should have been reported by tipped employees 17,120
4
11-1 Gross Receipts Method (continued)
Step 2 Determining individual employee
shortfall amounts.
Employee Tips that Should Have Been Reported Gross Receipts Ratios Gross Receipts Ratios Employees Share of the 8 Employees Share of the 8 Actual Reported Actual Reported Shortfall portion Shortfall portion Shortfall portion
1 17,120.00 X 26,000/214,000 2,080.00 - 1,300.00 780.00
2 17,120.00 X 42,000/214,000 3,360.00 - 2,300.00 1,060.00
3 17,120.00 X 39,000/214,000 2,800.00 - 3,000.00 - reported more
4 17,120.00 X 28,000/214,000 2,240.00 - 1,200.00 1,040.00
5 17,120.00 X 38,000/214,000 3,040.00 - 3,200.00 - reported more
6 17,120.00 X 45,000/214,000 3,600.00 - 4,600.00 - reported more
Total 17,120.00 15,600.00 2,880.00
5
11-1 Gross Receipts Method (continued)
Step 3 Allocation of shortfall.
Employee Shortfall Ratio Shortfall to be Allocated Shortfall to be Allocated Tip Allocation
1 780.00 / 2,880.00 X 1,520.00 411.67
2 1,060.00 / 2,880.00 X 1,520.00 559.44
3 - X 1,520.00 -
4 1,040.00 / 2,880.00 X 1,520.00 548.89
5 - X 1,520.00 -
6 - X 1,520.00 -
Total 1,520.00
6
11-2 Hours Worked Method
The hours worked method takes the total hours
worked and multiplies it by 8 to determine if
there is a shortfall.
Problem Data
Backyard Grill Restaurant Backyard Grill Restaurant Backyard Grill Restaurant
Employees Hours Worked Tips Reported
1 20 1,300
2 38 2,300
3 30 3,000
4 25 1,200
5 35 3,200
6 40 4,600
188 15,600
Using the provided data, determine the amount of
tips that should be allocated to each employee
using the hours worked method.
7
11-2 Hours Worked Method (continued)
Step 1 Determine the amount of shortfall to be
allocated.
Indirectly Tipped Employees 0
Total actual tips reported 15,600
Total tips according to 8 rule (214,000 x 8) 17,120.00
Total actual tips reported 15,600
Shortfall to be allocated 1,520
Total tips according to 8 rule (214,000 x 8) 17,120.00
Tips reported by indirectly tipped employees -
Tips that should have been reported by tipped employees 17,120
8
11-2 Hours Worked Method (continued)
Step 2 Determining individual employee
shortfall amounts.
Employee Tips that Should Have Been Reported Gross Receipts Ratios Gross Receipts Ratios Employees Share of the 8 Employees Share of the 8 Actual Reported Actual Reported Shortfall portion Shortfall portion Shortfall portion
1 17,120.00 X 20/188 1,821.28 - 1,300.00 521.28
2 17,120.00 X 38/188 3,460.43 - 2,300.00 1,160.43
3 17,120.00 X 30/188 2,731.91 - 3,000.00 - reported more
4 17,120.00 X 25/188 2,276.60 - 1,200.00 1,076.60
5 17,120.00 X 35/188 3,187.23 - 3,200.00 - reported more
6 17,120.00 X 40/188 3,642.55 - 4,600.00 - reported more
Total 17,120.00 12,050.00 2,758.30
9
11-2 Hours Worked Method (continued)
Step 3 Allocation of shortfall.
Employee Shortfall Ratio Shortfall to be Allocated Shortfall to be Allocated Tip Allocation
1 521.28 / 2758.30 X 1,520.00 287.26
2 1160.43 / 2758.30 X 1,520.00 639.47
3 - X 1,520.00 -
4 1076.60/2758.30 X 1,520.00 593.27
5 - X 1,520.00 -
6 - X 1,520.00 -
Total 1,520.00
10
11-3 Employer Payroll Taxes
EMPLOYER PAYROLL TAXES CONSISTS OF EMPLOYER PAYROLL TAXES CONSISTS OF
FICA TAX 7.65 of first 84,000 of wages each year (2002). Employee must also pay this tax (maximum of 6,494.85).
FEDERAL UNEMPLOYMENT TAX Normally 0.8 on the first 7,000 of wages each year. Federal rate is 6.2 but allows the employer a maximum credit of 5.4 on the federal rate for contributions to state unemployment taxes (6.2 - 5.4 0.8).
STATE UNEMPLOYMENT TAX Basic rate of 5.4 on the first 7,000 of wages each year. State rates are adjusted according to the employers experience rating.
11
11-4 Employer Payroll Entries
GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008
Employee Total Hours Earnings Earnings Earnings Deductions Deductions Deductions Deductions Deductions Deductions Paid Paid
Employee Total Hours Regular Over-time Gross Pay FICA Federal Income Tax State Income Tax United Fund Union Dues Total Deductions Net Pay Check No.
Wages
Fisher, John 44 480.00 72.00 552.00 44.16 94.00 10.32 18.00 5.00 171.48 380.52 1025
Dunlop, Robert 42 480.00 36.00 516.00 41.28 94.00 10.32 15.00 5.00 165.60 350.40 1026
Hemander, Paul 43 480.00 54.00 534.00 42.72 88.00 10.68 20.00 5.00 166.40 367.60 1027
Bell, Bert 44 480.00 72.00 552.00 44.16 73.00 11.04 10.00 5.00 143.20 408.80 1028
Total 1,920.00 234.00 2,154.00 172.32 349.00 42.36 63.00 20.00 646.68 1,507.32

• Record
• Payroll entry for the week ending January 14.
• Payroll taxes associated with the January 14
  payroll. FICA (8) Fed. Unemp. (.8) State
  Unemp. (5.4).
• Payment of the January 14 payroll on January 21.
• Payment of the January 14 payroll taxes on
  January 21.

12
11-4 Employer Payroll Entries (continued)
Jan. 14 Wages Expense 2,154.00
FICA Taxes Payable 172.32
Federal Income Taxes Payable 349.00
State Income Taxes Payable 42.36
United Fund Payable 63.00
Union Dues Payable 20.00
Wages Payable 1,507.32
To record January 14 payroll To record January 14 payroll To record January 14 payroll To record January 14 payroll
Jan. 14 Payroll Tax Expense 305.87
FICA Taxes Payable 172.32
Federal Unemployment Taxes Payable 17.32
State Unemployment Taxes Payable 116.32
To record January 14 payroll taxes To record January 14 payroll taxes To record January 14 payroll taxes To record January 14 payroll taxes
Jan. 21 Wages Payable 1,507.32
Cash 1,507.32
To record payment of January 14 payroll To record payment of January 14 payroll To record payment of January 14 payroll To record payment of January 14 payroll
Jan. 21 FICA Taxes Payable 172.32
Federal Unemployment Taxes Payable 17.23
State Unemployment Taxes Payable 116.32
Cash 305.87
To record payment of January 14 payroll taxes To record payment of January 14 payroll taxes To record payment of January 14 payroll taxes To record payment of January 14 payroll taxes