CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Chapter 12

Objectives: 1. Define accounting terms related to payroll records 2. Identify accounting practices related to payroll records 3. Complete a payroll time card 4. Calculate payroll taxes 5. Complete a payroll register and an employee earnings record 6. Prepare payroll checks

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 12-1 - Preparing Payroll Time Cards

Salary – money paid for employee services Pay period – period covered by a salary payment

A business may decide to pay employee salaries every week, every two weeks, twice a month, or once a month

How may pays would an employee receive in a year if he/she were paid… Weekly…52 Biweekly (every two weeks)…26 Semimonthly (twice a month)…24 Monthly…12

Payroll – total amount earned by all employees for a pay period Employees can be paid based on hours worked (wages), a fixed amount

each pay (salary), commissions Time cards – used to record how much time an employee worked

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

3

LESSON 12-1

ANALYZING A PAYROLL TIME CARD page 341

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

4

LESSON 12-1

4. Add the Hours column.

CALCULATING EMPLOYEE HOURS WORKED page 342

1

2

3 4

3. Add Hours Reg and Hours OT columns and enter the totals.

2. Calculate the number of overtime hours and enter the amounts.

1. Calculate the number of regular hours for each day and enter the amounts.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

5

LESSON 12-1

CALCULATING EMPLOYEE TOTAL EARNINGS page 343

3

1 2

4 5

1. Enter the rate for regular time in the Rate column.

2. Calculate the regular earnings. Enter the amount.

3. Enter the rate for overtime. 4. Calculate the overtime

earnings. Enter the amount. 5. Add the Amount column to

calculate total earnings. Enter the amount of total earnings.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Calculating Employee Total Earnings Regular hours x Regular rate = Regular Earnings

88 x 12.00 = 1,056.00 Regular rate x Overtime rate = Overtime Rate 12.00 x 1.5 = 18.00 Overtime hours x 1.5 = Overtime Earnings 4.5 x 18.00 = 81.00 Regular Earnings + Overtime Earnings = Total Earnings 1,056 + 81 = 1,137

Total Earnings – the total pay due for a pay period before deductions

(gross pay or gross earnings) This will be reduced by state and federal taxes and other deductions, such as

health insurance

6

LESSON 12-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

7

LESSON 12-1

TERMS REVIEW

salary pay period payroll total earnings

page 344

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 12-2 - Determining Payroll Tax Withholding

Payroll taxes – taxes based on the payroll of a business Employers are required to withhold federal income taxes, along with

other taxes (state, city, or county) Payroll taxes represent a liability for the employer until they are paid Accurate and detailed payroll records must be maintained in order to

avoid errors and penalties

Form W-4 contains the information used to determine the amount of income tax withheld

Withholding allowance – deduction from total earnings for each person legally supported by a taxpayer

Amount withheld is based on employee marital status, # of withholding allowances, and employee earnings Tables are provided by IRS to determine income tax amount

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

9

LESSON 12-2

EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE

1 2 3

4

5

page 346

1. Write the employee’s name and address 2. Write the employee’s social security number. 3. Check the appropriate marital status block. 4. Write the total number of withholding allowances claimed. 5. The employee signs and dates the form.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

10

LESSON 12-2

EMPLOYEE’S INCOME TAX WITHHOLDING – MARRIED PERSONS page 348

1

2 3

1. Select the appropriate table. 2. Locate the employee’s total earnings. 3. Intersection of wages and number of allowances column.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Determining Payroll Tax Withholding

FICA – Federal Insurance Contributions Act – provides for a federal system of old-age, survivors, disability and hospital insurance Social security tax – a federal tax paid for old-age, survivors, and

disability insurance Medicare tax – a federal tax paid for hospital insurance Both the employer AND employee pay Social Security and Medicare

taxes

Tax base – maximum amount of earning on which a tax is calculated No more Social Security tax is deducted once an employee’s earnings

reach the base; Social Security tax rate and base are set by Congress and can change at any time

Medicare does NOT have a tax base

11

LESSON 12-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Determining Payroll Tax Withholding

For this text… Social Security tax rate – 6.2%

Base = $87,000 Medicare 1.45% with no base

Example, page 349

12

LESSON 12-1

Total Earnings x Social Security Tax Rate = Social Security Tax Deduction 1,137.00 x 6.2% = 70.49

Total Earnings x Medicare Tax Rate = Medicare Tax Deduction 1,137.00 x 1.45% = 16.49

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

13

LESSON 12-2

TERMS REVIEW

payroll taxes withholding allowance social security tax Medicare tax tax base

page 350

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 12-3 - Preparing Payroll Records

Payroll register - A business form used to record payroll information Shows total earnings, payroll withholdings, and net pay of all

employees for the pay period

Net pay – total amount paid to employees after payroll taxes and other deductions have been deducted

Voluntary deductions – deductions from employee earnings that are not required by the government Health insurance, US Savings Bonds, United Way Donations,

Retirement Plans, etc.

Employee Earnings Record – a business form used to record details affecting payments made to an employee

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

15

LESSON 12-3

PAYROLL REGISTER

7 8 9 10 11

12

page 351

1 2

3 4 5 6

13

8. Health insurance premium deductions 2. Payment date 3. Employee personal data

9. Other employee payroll deductions

4. Earnings 10. Total deductions

5. Federal income tax withheld 11. Net pay

6. Social security tax withheld 12. Total, prove, and rule

7. Medicare tax withheld 13. Check number

1. Pay period date

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

16

LESSON 12-3

EMPLOYEE EARNINGS RECORDS page 353

7. Total and prove

5. Earnings, deductions, net pay

2. Employee personal data

1

1. Last day of quarter

4. Pay period

3. Beginning accumulated earnings

6. Updated accumulated earnings

4

2

7

6

3

5

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

17

LESSON 12-3

TERMS REVIEW

payroll register net pay employee earnings record

page 355

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 12-4 - Preparing Payroll Checks

Check is written out of the general checking account for the total of the net pay to cover payroll

Check is then deposited in the Payroll Checking Account Special checking account for payroll is kept which helps to protect and

control payroll payments Payroll checks have a detachable stub to supply information about the

earnings and amounts deducted Information on stub comes from the payroll register

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

19

LESSON 12-4

PAYROLL BANK ACCOUNT

1. Prepare the check stub.

page 356

2. Prepare the check.

1 2

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

20

LESSON 12-4

EMPLOYEE’S PAYROLL CHECK page 357

1. Prepare the check stub of each employee’s payroll check. 2. Prepare each employee’s payroll check.

2 1