AC122.01: Unit 7 Seminar March 14, 2012

School of Business and Management

Agenda

• Welcome

• Seminar Rules

• Chapter 6 Analyzing & Journalizing Payroll

• Questions

Seminar Rules by Greg Rose

1. If I type *BREAK* everybody quit typing, OK? Type “OK” if you get this one!

2. When asking questions, please RAISE YOUR HAND (TYPE //). Otherwise you might interrupt a stream of dialogue.

3. Please do NOT start side conversations.

4. Do not interject “I agree” or “good point” because this clutters the seminar. We assume you agree and think the point is good!

5. Don`t worry about typos. Be clear as you can and refrain

from smileys and slang – use proper English.

• Assignments Grading

• Late Policy

• Seminar procedures and Polling

• Questions

Learning Objectives

Record payrolls in appropriate records

Understand various deductions taken from employees’ gross pay

Journalize entries to record payroll

Post to general ledger

Explain recording of payroll tax deposits

Understand need for end-of-period adjustments

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 withholdingsJournalize payroll taxes and workers’ compensationJournalize period-end accruals

Post to General Ledger

Payroll Register

First – record info in payroll register Lists employees in rows and shows following

information for eachGross wagesTaxes withheld and other deductionsNet 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*

Employee’s Earnings Record

Second – transfer info to employees’ earnings

records Used to track cumulative totals (wages and taxes)

Enter row of data for 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

Used to prepare payroll analyses - various internal and

external reports

Might be used to settle employee grievances

Recording Gross Payroll & Withholdings

Third - enter information into accounting system

Gross payroll is debited

Each withholding tax is a liability

All other payroll deductions are liabilities as well

Recording Gross Payroll & Withholdings

Any deduction that the ER makes from EE’s 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

Garnishments

A creditor can, through the courts, seek repayment of his/her money by garnishment ER is required to comply with garnishment order

ER must withhold funds from EE’s paycheck and submit it to appropriate authorities Garnishments limited based upon Consumer Credit

Protection Act (CCPA) and vary for Child support (see next slide)CreditorsAdministrative wagesStudent loans

Note: Chapter 13 bankruptcy orders have highest

priority over all other claims

Child Support

Family Support Act requires immediate

withholding for child-support payments Child support takes precedence over most deductions

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

person’s weekly disposable earnings varies

according to different support orders, but can be

as high as 55-65% of disposable earnings

Federal Tax Levy

These levies are suspended if debtor declares bankruptcy

Amount of taxpayer’s standard deduction is only amount that is exempt from a federal tax levy $5,700 for single and $11,400 for married

IRS publishes tables that can be used to figure amount exempt from tax levies

ER required to withhold until Form 668-D (Release of Levy/Release of Property from Levy) received

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 employees in company’s plan and deduct contributions from pay

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 ER to deposit payroll into prepaid card Card utilized like debit or credit card Over 25% of employees who do not have bank accounts use these

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 EE is fired

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).

Journal Entry #1Journal Entry #1 Debit Wage Expense for gross payroll Credit each withholding account - they are all liabilities Credit cash (or wages payable) for net payroll

Gross OASDI HI FIT SIT Insurance Net1,000.00 62.00 14.50 83.00 21.00 103.00 716.50

845.00 52.39 12.25 91.00 29.00 88.00 572.36 1,845.00$ 114.39$ 26.75$ 174.00$ 50.00$ 191.00$ 1,288.86$

Journal entry #1Wage Expense 1,845.00

FICA Taxes Payable - OASDI 114.39FICA Taxes Payable - HI 26.75Employees FIT Payable 174.00SIT Payable 50.00Group Insurance Payments W/H 191.00Cash 1,288.86

Journal Entry #2Journal Entry #2

Debit Payroll Tax Expense for total of all payroll taxes that ER pays

Credit each account - they are all liabilitiesPayroll for Period Ended 5/15/2010

0.8% 2.8% 6.2% 1.45%

EE Gross FUTA Wages SUTA Wages OASDI Wages HI Wages

A 1,000.00 - 800.00 1,000.00 1,000.00

B 845.00 215.00 845.00 845.00 845.00

Total 1,845.00$ 215.00$ 1,645.00$ 1,845.00$ 1,845.00$

Tax 1.72$ 46.06$ 114.39$ 26.75$

Calculate all employer taxes utilizing varying wage bases and percentagesJournal entry #2

Payroll Tax Expense 188.92FUTA Taxes Payable 1.72SUTA Taxes Payable 46.06FICA Taxes Payable - OASDI 114.39FICA Taxes Payable - HI 26.75

Recording Deposit of Payroll TaxesRecording Deposit of Payroll Taxes

Look in general ledger for amounts due

Deposit 941 taxes

Deposit state income tax

Deposit SUTA

228.78

53.50

174.00

Cash 456.28

FICA Taxes Payable - HIFIT Payable

FICA Taxes Payable - OASDI

SUTATaxes Payable Cash 46.06

46.06

SIT Payable Cash 50.00

50.00

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

Journal Entry for Workers’ Journal Entry for Workers’ CompensationCompensation

EE Gross Work Grade Rate per $100 Premium A 1,000.00 Fabricator 9.08 90.80 B 845.00 Administrator 1.05 8.87

Total 1,845.00$ 99.67$

Payroll for Period Ended 5/15/10

Debit Work Comp. Insurance Expense for premium paid

Credit Cash (if paying) or Insurance Payable (if accruing)

Journal entryWorkers’ Comp. Insurance Expense 99.67

Cash or Workers’ Comp Insurance Payable 99.67

Journalize Period-End AccrualsAccrued wages should be recorded for wages earned

by workers, but not yet paid

Journal entryWage Expense 1,589.96

Wages Payable 1,589.96

Accrued vacation pay should be recorded for amount of vacation pay owed employees - many employers now merging sick time and vacation time

Journal entryVacation Benefits Expense 520.00 Vacation Benefits Payable 520.00

Note: Not necessary to accrue payroll tax expense at year-end

Summary of Accounts Used

Account Title Normal Balance Type of Account

FIT Payable Credit Liability

SIT Payable Credit Liability

Insurance Payable Credit Liability

Workers’ Comp Insurance Payable

Credit Liability

Union Dues Payable Credit Liability

Wages Payable Credit Liability

Vacation Benefits Payable

Credit Liability

Summary of Accounts Used

Account Title Normal Balance Type of Account

Wage Expense Debit Expense

Payroll Tax Expense Debit Expense

Workers’ Compensation Insurance Expense

Debit Expense

Vacation Benefits Expense

Debit Expense

OASDI Payable Credit Liability

HI Payable Credit Liability

FUTA Payable Credit Liability

SUTA Payable Credit Liability

Questions

Thank you for attending this seminar.