CHAPTER 6CHAPTER 6

ANALYZING ANDANALYZING AND

JOURNALIZINGJOURNALIZING

PAYROLL TRANSACTIONSPAYROLL TRANSACTIONS

Developed by Lisa Swallow, CPA CMA MS

ACCOUNTING FOR PAYROLL TRANSACTIONS

Payroll requires entering data (in order) in the following places: Payroll Register Employee Earnings Records General Journal

journalize wagesjournalize payroll taxes and workers compjournalize period end accruals

Post to General Ledger

Payroll RegisterPayroll Register

Payroll register shows (in rows) each employee’s gross wages all taxes withheld and other deductions net pay by employee

Payroll register shows (in columns) total of gross wages, each deduction and net

“Foot” or prove payroll register by ensuring that columns and rows all total to bottom right hand number

*Use payroll register to journalize*

EmployeeEmployeeEarnings RecordsEarnings Records

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 various internal and external reports

Two Journal Entries to Record Two Journal Entries to Record PayrollPayroll

Number 1 - Record gross wages, withholdings and net pay

Number 2 - Record employer payroll tax expense*These two journal entries are always the same in format and you must make both of them every time you issue any paycheck (even if 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

A 1000.00 76.50 83.00 21.00 103.00 716.50B 845.00 64.64 91.00 29.00 88.00 572.36 Total 1,845.00$ 141.14$ 174.00$ 50.00$ 191.00$ 1,288.86$

Journal entryWage Expense 1845.00

FICA Payable 141.14FIT Payable 174.00SIT Payable 50.00Insurance Payable 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 5/15/01

0.8% 2.8% 6.2% 1.45%EE Gross FUTA Wages SUTA Wages OASDI Wages HI Wages

A 1000.00 0.00 800.00 1000.00 1000.00B 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 percentages

Journal entryPayroll Tax Expense 188.92

FUTA Payable 1.72SIT Payable 46.06OASDI Payable 114.39HI Payable 26.75

Recording Deposit of Payroll Taxes

Look in general ledger, in each applicable liability account, for amount due

Deposit 941 taxes

Deposit state income tax

Deposit FUTA and SUTA

Oasdi Payable 124.00

HI Payable 29.00

FIT Payable 85.00

Cash 238.00

SIT Payable 43.00

Cash 43.00

SUTA Payable 18.50 Cash 18.50FUTA Payable 5.29 Cash 5.29

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 (clerical people are at different rate than factory workers) per $100 of payroll pay premiums in advance based on forecast

then at year end report actual wages and pay additional or receive credit towards next year

Recording Workers Compensation

Payroll for Period Ended 5/15/01Per $100 of payroll

EE Gross Position Work Comp Rate Premium A 1000.00 Fabricator 9.08$ 90.80B 845.00 Administrator 1.05$ 8.87Total 1,845.00$ 99.67$

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 Insurance Payable 99.67

Journalize Period End Accruals

Accrued Wages should be recorded for wages earned by workers but not yet paid (gross)Wage Expense 1589.96

Wages Payable 1589.96

Accrued Vacation Pay should be recorded for amount of vacation pay owed employees

Vacation Benefits Expense 520.00

Vacation Benefits Payable 520.00

Nontax 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: Health insurance premiums Purchase EE or HH government bonds Union dues Deferred compensation (contributions to

pension plan)

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 EE’s paycheck

and submit it to appropriate authorities cannot legally withhold more than 25% of

disposable income (after tax earnings)