chapter twenty six payroll procedures mcgraw-hill/irwin accounting fundamentals, 7/e © 2006 the...
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CHAPTER TWENTY SIX
PAYROLL PROCEDURES
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1. Compute gross earnings using different pay plans.
2. Read a time card and compute regular hours and overtime hours.
3. Compute deductions and net pay.
4. Prepare a payroll register and employee earnings record.
5. Journalize the payroll and payroll taxes.
PAYROLL PROCEDURES
Chapter Outcomes:
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Pay Plans
Salary Plan
Hourly-Rate Plan
Piece-Rate Plan
Commission Plan
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Computing Gross Earnings
Gross earnings may include both regular earnings and overtime earnings.
When an employee works over 40 hours, overtime must be paid at a rate of at least 1.5 times the regular rate.
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Computing Gross Earnings (continued)
Regular hours are multiplied by the hourly rate. Hours x rate = pay
Overtime hours worked are multiplied by the overtime rate. Hours x rate = OT
Regular earnings and overtime earnings are added together to calculate gross pay.
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Determining Employee Deductions
Federal Income Tax Withholding
Social Security Tax (FICA)
Medicare Tax
Other Deductions
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Computing Net Pay
Gross Earnings - Deductions = Net Pay
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Preparing Payroll Records
Many businesses use a payroll register to record the pay to employees.
A payroll register includes the information about the employee and his/her earnings--marital status, withholding allowance, hours worked, earnings, deductions, net pay, and check number.
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Paying the Employees
Each employee should get a paycheck along with an explanation of any deductions.
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Recording the Payroll
In the General Journal, the transaction would look like this:
Post Ref Debit Credit
20 xx
May 22 1,799 Employee Income Tax Payable 103 Social Security Tax Payable 112 Medicare Tax Payable 26 Salaries and Wages Payable 1,558 Payroll for the w eek ended May 22
Date Description
Salaries and Wages Expense
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Recording the Employer’s Payroll Taxes
Most businesses are subject to several payroll taxes -- the employer’s social security tax, Medicare tax, federal unemployment tax, and state unemployment tax.
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Recording the Employer’s Payroll Taxes (continued)
The General Journal entry would look like:
Post Ref Debit Credit
20 xx
May 22 236.53 Social Security Tax Payable 111.52 Medicare Tax Payable 26.08 Federal Unemployment Tax Payable 14.39 State Unemployment Tax Payable 84.54 Employer's taxes on May 22 payroll
Date Description
Payroll Taxes Expense
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Payroll Tax Forms
A number of payroll tax forms are required by the federal government.
•Employers Quarterly Federal Tax Return (Form 941)
•Wage and Tax Statement (Form W-2)
•Transmittal of Income and Tax Statements (Form W-3)
•Annual Federal Unemployment Tax Return (Form 940)
•Federal Tax Deposit (Form 8109) accompanies each payment of Federal Taxes.
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Accounting Terminology
•Direct deposit
•Employee earnings record
•Gross earnings
•Hourly-rate plan
•Net pay
•Overtime
•Pay statement
•Payroll taxes
•Piece-rate plan
•Salary commission plan
•Salary plan
•Time cards
•Time clock
•Time sheets
•Year-to-date earnings
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Chapter Summary
• The total amount an employee earns is known as gross earnings.
• Gross earnings may include both regular earnings and overtime earnings.
• Net pay is gross earnings less deductions.
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Chapter Summary (continued)
• The amount of federal income tax withheld for each employee depends on gross earnings, marital status, and the number of withholding allowances.
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Chapter Summary (continued)
• By law, businesses must keep detailed records of the hours worked, gross earnings, deductions, and net pay of their employees.
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Chapter Summary (continued)
•After the payroll is computed, it must be recorded in the General Journal. When the employees are paid, an entry is made in the cash payments journal.
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Chapter Summary (continued)
•Most businesses are subject to several payroll taxes -- the employer’s social security and Medicare tax, federal unemployment tax, and state unemployment tax
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Chapter Summary (continued)
• Businesses must prepare a number of payroll tax forms for the federal government. Other payroll tax forms may be required by state and city tax agencies.
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Investigating on the Internet
As a research assignment, access the IRS web site and report those sources of information that might concern payroll taxes.
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1. The total amount an employee earns is known as net earnings.
2. Most businesses are subject to payroll
taxes.
3. Not all businesses must keep detailed records of employee pay.
Topic QuizAnswer the following true/false questions:
TRUE
FALSE
FALSE
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(Return to Topic Quiz)
1. The total amount an employee earns is known as net earnings.
FALSEThe total amount an employee earns is known as gross earnings.
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(Return to Topic Quiz)
3. Not all businesses must keep detailed records of employee pay.
FALSEAll businesses must keep detailed records of employee pay.