Heintz & Parry 20 th Edition Chapter 8 20 th Edition College Accounting Payroll Accounting: Employee Earnings and Deductions 1 Distinguish between employees and independent contractors. PAYROLL RECORD KEEPING Payroll costs are major expenditures for most businesses Records provide data for analyzing and controlling these expenditures Laws require records to be kept For the business as a whole For each employee EMPLOYEES OR INDEPENDENT CONTRACTORS? EMPLOYEES Work under the control and direction of an employer Examples: Secretaries Sales Clerks Plant Supervisors Maintenance Workers
INDEPENDENT CONTRACTORS Perform services for a fee and do not work under the control and direction of the company paying for the services Examples Lawyers Public Accountants Real Estate Agents EMPLOYEES vs. INDEPENDENT CONTRACTORS Employees involve: More laws and regulations Taxes that must be deducted Payroll records to maintain Numerous reports to file Only one form must be filed for independent contractors Form 1099 2 Calculate employee earnings and deductions. SALARIES AND WAGES Salaries Compensation for managerial or administrative services Expressed in biweekly, monthly, or annual terms Wages Compensation for skilled and unskilled labor Expressed in terms of hours, weeks, or units produced OVER COMPUTING Fair Labor Standards Act (FLSA) Requires employers to pay overtime (1½ times the regular rate) to any hourly employee who works over 40 hours in a week Some salaried employees are exempt from the FLSA rules When compensation is based on time, a record must be kept of the time worked by each employee Examples: Time cards, plastic cards or badges with special magnetic strip barcodes The hours worked are multiplied by the rate of pay to determine total earnings
COMPUTING EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday. 40 hours $12 per hour = $480 11 hours $18 per hour = $198 $12 1½ = $18 overtime rate COMPUTING EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday. 40 hours $12 per hour = 11 hours $18 per hour = 4 hours $24 per hour = $480 198 96 4 Sunday hours, twice the regular rate ($12 2 = $24 Sunday rate) COMPUTING EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday. 40 hours $12 per hour = $480 11 hours $18 per hour = 198 4 hours $24 per hour = 96 Total earnings for the week $774 COMPUTING EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. In order to compute her overtime rate, we must determine her regular hourly rate. Also called gross pay. COMPUTING EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #1 Determine her annual salary. $2,288 per month 12 months = $27,456 annual pay COMPUTING EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #2 Determine her weekly salary. $27,456 annual salary 52 weeks = $528.00 pay per week
COMPUTING COMPUTING EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #3 Compute regular hourly pay. $528 per week 40 hours per week = $13.20 pay per regular hour EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #4 Compute overtime rate. $13.20 per hour 1½ = $19.80 overtime pay per hour FROM Three categories: Federal (and possibly state and city) income tax withholding Employee FICA tax withholding Voluntary deductions Gross pay Deductions = Net pay Also called take-home pay INCOME WITHHOLDING Required by federal law Applied toward the payment of the employee s federal income tax Amount withheld determined by: Total earnings Marital status Number of withholding allowances claimed Length of the pay period WITHHOLDING ALLOWANCES Exempt a specific dollar amount of an employee s gross pay from federal income tax withholding Computed on Form W-4 Employee s Withholding Allowance Certificate Based on the marital status and the number of allowances claimed In general, each employee is permitted one personal withholding allowance, one for a spouse who does not also claim an allowance, and one for each dependent WAGE-BRACKET METHOD EXAMPLE: Ken Istone, who is married and claims 6 allowances, has gross earnings of $545 for the week ending December 19, 20--. Determine the amount of federal income tax to be withheld using the wage-bracket method.
MARRIED Persons WEEKLY Payroll Period If the wages are At least But less than $ 390 $ 400 400 410 540 550 550 560 560 570 570 580 580 590 630 640 640 650 And the # of withholding allowances claimed is 0 1 2 3 4 5 6 7 8 9 10 The amount of income tax to be withheld is 24 18 11 5 0 0 0 0 0 0 0 25 19 12 6 0 0 0 0 0 0 0 44 46 47 49 50 35 36 38 39 41 26 27 28 30 31 20 21 22 23 24 14 7 1 0 0 0 0 15 8 2 0 0 0 0 16 9 3 0 0 0 0 17 10 4 0 0 0 0 18 11 5 0 0 0 0 Step #1 Find the row for wages of at least $540, but less than $550. 58 59 48 50 39 40 29 31 23 24 16 17 10 11 4 5 0 0 0 0 0 0 MARRIED Persons WEEKLY Payroll Period If the wages are And the # of withholding allowances claimed is But less 0 1 2 3 4 5 6 7 8 9 10 At least than Step The #2 amount of income tax to be withheld is Find $ 390 the $ column 400 24 headed 18 11 6 5 0 0 0 0 0 0 0 withholding 400 410 allowances. 25 19 12 6 0 0 0 0 0 0 0 540 550 550 560 560 570 570 580 580 590 630 640 640 650 44 46 47 49 50 58 59 35 36 38 39 41 48 50 26 27 28 30 31 39 40 20 21 22 23 24 29 31 14 7 1 0 0 0 0 15 8 2 0 0 0 0 16 9 3 0 0 0 0 17 10 4 0 0 0 0 18 11 5 0 0 0 0 23 24 16 17 10 4 0 0 0 11 5 0 0 0 MARRIED Persons WEEKLY Payroll Period If the wages are And the # of withholding allowances claimed is At least But less 0 1 2 3 4 5 6 7 8 9 10 than The amount of income tax to be withheld is $ 390 $ 400 24 18 11 5 0 0 0 0 0 0 0 400 410 25 19 12 6 0 0 0 0 0 0 0 540 550 550 560 560 570 570 580 580 590 630 640 640 650 44 46 47 49 50 58 59 35 36 38 39 41 48 50 26 27 28 30 31 39 40 20 21 22 23 24 Step #3 Find the amount where they cross. This is the amount to be withheld. 29 31 14 7 1 0 0 0 0 15 8 2 0 0 0 0 16 9 3 0 0 0 0 17 10 4 0 0 0 0 18 11 5 0 0 0 0 23 24 16 17 10 4 0 0 0 11 5 0 0 0 EMPLOYEE FICA WITHHOLDING Includes amounts for: Social Security Provides pension and disability benefits Medicare Provides health insurance Required by the Federal Insurance Contributions Act (FICA) EMPLOYEE FICA WITHHOLDING EMPLOYEE FICA WITHHOLDING Tax rates are set by Congress Social Security 6.2% on maximum earnings of $106,800 Medicare 1.45% on ALL earnings; there is no maximum Rates can be changed annually by Congress EXAMPLE: Sarah Cadrain had earnings of $1,600 for the December 6 12 pay period, bringing her earnings year-to-date to $105,540. Sarah s earnings have not yet reached the maximum of $106,800. ALL of her earnings for this week are subject to Social Security and Medicare tax.
EMPLOYEE FICA WITHHOLDING EMPLOYEE FICA WITHHOLDING EXAMPLE: Sarah Cadrain had earnings of $1,600 for the December 6 12 pay period, bringing her earnings year-to-date to $105,540. Gross Pay Tax Rate = Tax $1,600 Social Security 6.2% Medicare 1.45% $ 99.20 23.20 $122.40 EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Year-to-date earnings Social Security maximum $107,200.00 106,800.00 Amount not subject to S.S. tax $ 400.00 EMPLOYEE FICA WITHHOLDING EMPLOYEE FICA WITHHOLDING EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Gross pay $1,660.00 Amount not subject to S.S. tax 400.00 Amount subject to S.S. tax $ 1,260.00 Tax rate 6.2% Social Security tax $ 78.12 EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Gross pay Since Medicare has no maximum earnings, all of Cadrain s gross pay is subject to the Medicare tax. $1,660.00 EMPLOYEE FICA WITHHOLDING EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Gross pay $1,660.00 Tax rate 1.45% Medicare tax $ 24.07 Sarah s total FICA tax is $102.19 ($78.12 S.S. + $24.07 Med.) VOLUNTARY Deductions that are optional and depend on specific agreements between the employee and employer Examples: U.S. savings bond purchases Health insurance premiums Credit union deposits Pension plan payments Charitable contributions
COMPUTING NET PAY EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay $545.00 Deductions: Federal income tax withholding $ 1.00 From the wage bracket withholding tables COMPUTING NET PAY EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay $545.00 Deductions: Federal income tax withholding $ 1.00 Social Security tax withholding 33.79 All his pay is subject to S.S. tax ($545 6.2%) COMPUTING NET PAY EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay $545.00 Deductions: Federal income tax withholding $ 1.00 Social Security tax withholding 33.79 Medicare tax withholding 7.90 $545 1.45% COMPUTING NET PAY EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay $545.00 Deductions: Federal income tax withholding $ 1.00 Social Security tax withholding 33.79 Medicare tax withholding 7.90 Health insurance premiums 10.00 Total deductions 52.69 Net pay $492.31 3 Describe and prepare payroll records. PAYROLL RECORDS Should provide the following information on each employee Name, address, occupation, social security number, marital status, and number of withholding allowances Gross amount of earnings, date of payment, period covered by each payroll Gross amount of earnings accumulated for the year Amounts of taxes and other items withheld
Three types: PAYROLL RECORDS PAYROLL REGISTER NAME # MARITAL REGULAR OVER- PAYROLL CHECK with earnings statement EMPLOYEE RECORD A payroll register is a form used to assemble the data required at the end of each payroll period. NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Since marital status and number of allowances are used to compute withholding taxes, they are recorded on the payroll register. Earnings for this period are shown, categorized by regular and overtime earnings. CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE This pay period has taken Cadrain s earnings above the Social Security maximum. As computed earlier, only $1,260 of this period s earnings is subject to the Social Security tax. All deductions from total earnings are listed.
HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Deductions are totaled and subtracted from total earnings to arrive at net pay. The payroll information for the other employees is recorded in the same manner. CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00
CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 60.00 47.99 11.22 13.00 20.00
HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 13.00 20.00 152.21 621.79 412 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 60.00 47.99 11.22 13.00 20.00 10.00 27.28 6.38 13.00 HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 13.00 20.00 152.21 621.79 412 13.00 56.66 383.34 413 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00
CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 60.00 47.99 11.22 13.00 20.00 10.00 27.28 6.38 13.00 75.00 45.01 10.53 HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 13.00 20.00 152.21 621.79 412 13.00 56.66 383.34 413 130.54 595.46 414 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00 Tucci, Paul 5 M 490.00 490.00 CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 490.00 25,050.00 490.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 60.00 47.99 11.22 13.00 20.00 10.00 27.28 6.38 13.00 75.00 45.01 10.53 2.00 30.38 7.11 10.00
HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 13.00 20.00 152.21 621.79 412 13.00 56.66 383.34 413 130.54 595.46 414 10.00 49.49 440.51 415 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00 Tucci, Paul 5 M 490.00 490.00 Wiles, Harry 1 S 300.00 300.00 CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 490.00 25,050.00 490.00 300.00 6,300.00 300.00 300.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 60.00 47.99 11.22 13.00 20.00 10.00 27.28 6.38 13.00 75.00 45.01 10.53 2.00 30.38 7.11 10.00 22.00 18.60 4.35 HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 13.00 20.00 152.21 621.79 412 13.00 56.66 383.34 413 130.54 595.46 414 10.00 49.49 440.51 415 44.95 255.05 416 NAME # MARITAL REGULAR OVER- Cadrain, Sarah 4 M 1,600.00 60.00 1,660.00 Guder, James 1 S 760.00 140.00 900.00 Istone, Ken 6 M 545.00 545.00 Kuzmik, Helen 2 M 480.00 294.00 774.00 Lee, Hoseoup 3 M 440.00 440.00 Swaney, Linda 2 S 528.00 198.00 726.00 Tucci, Paul 5 M 490.00 490.00 Wiles, Harry 1 S 300.00 300.00 5,143.00 692.00 5,835.00
CUMULATIVE 1,660.00 107,200.00 ABLE COMP. 1,260.00 900.00 43,400.00 900.00 545.00 27,025.00 545.00 774.00 31,000.00 774.00 440.00 22,340.00 440.00 726.00 27,500.00 726.00 490.00 25,050.00 490.00 300.00 6,300.00 300.00 300.00 5,835.00 289,815.00 300.00 5,435.00 INCOME 184.00 SOC. SEC. 78.12 MEDICARE 24.07 HEALTH INSURANCE 134.00 55.80 13.05 20.00 1.00 33.79 7.90 10.00 60.00 47.99 11.22 13.00 20.00 10.00 27.28 6.38 13.00 75.00 45.01 10.53 2.00 30.38 7.11 10.00 22.00 18.60 4.35 488.00 336.97 84.61 46.00 40.00 HEALTH INSURANCE NET PAY CHECK NO. 286.19 1,373.81 409 20.00 222.85 677.15 410 10.00 52.69 492.31 411 13.00 20.00 152.21 621.79 412 13.00 56.66 383.34 413 130.54 595.46 414 10.00 49.49 440.51 415 44.95 255.05 416 46.00 40.00 995.58 4,839.42 PAYROLL CHECK Employees may be paid in cash or by check The employer furnishes an earnings statement to each employee along with his or her paycheck In many cases, payment is made by direct deposit or electronic funds transfer (EFT) by the employer to the employee s bank Payment by check or direct deposit provides better internal accounting control than payment by cash PERIOD ENDED 12/5 12/12 EMPLOYEE RECORD REGULAR 11/28 545.00 OVER 75.00 620.00 545.00 75.00 620.00 545.00 A separate 75.00 earnings 620.00 record is maintained for each employee. CUMULATIVE GENDER DEPARTMENT OCCUPATION # M F Maintenance Service 393-58-8194 25,240.00 25,860.00 26,480.00 PERIOD ENDED EMPLOYEE RECORD REGULAR OVER 11/28 545.00 75.00 620.00 12/5 12/12 545.00 Let s record 75.00 the last 620.00 entry 545.00 of the year 75.00 for Ken Istone. 620.00 CUMULATIVE GENDER DEPARTMENT OCCUPATION # M F Maintenance Service 393-58-8194 25,240.00 25,860.00 26,480.00
PERIOD ENDED EMPLOYEE RECORD REGULAR 11/28 545.00 OVER 75.00 620.00 CUMULATIVE 25,240.00 12/5 545.00 75.00 620.00 25,860.00 12/12 545.00 75.00 620.00 26,480.00 12/19 545.00 545.00 27,025.00 GENDER DEPARTMENT OCCUPATION # M F MaintenanceEarnings Service for this period393-58-8194 are recorded and the cumulative earnings are updated. EMPLOYEE RECORD ABLE COMPENSATION MARITAL STATUS ALLOWANCES M 620.00 620.00 620.00 INCOME 9.00 9.00 9.00 PAY RATE $545/week 38.44 38.44 38.44 545.00 1.00 33.79 Deductions are noted. EMPLOYEE RECORD MEDICARE HEALTH INSURANCE 8.99 8.99 10.00 10.00 8.99 10.00 7.90 10.00 OTHER DATE OF BIRTH DATE HIRED NAME/ADDRESS Ken M. Istone 8/17/64 1/3/87 1546 Swallow Drive St. Louis, MO 63144-4752 EMPLOYEE RECORD OTHER CHECK # 66.43 66.43 387 395 AMOUNT 547.57 547.57 66.43 403 547.57 52.69 411 492.31 NAME/ADDRESS EMPLOYEE NUMBER Ken M. Istone 1546 Swallow Drive Deductions are totaled and 3 St. Louis, MO 63144-4752 net pay is recorded, along with the paycheck s number. 4 Account for employee earnings and deductions. 1 2 3 4 5 6 7 8 9 10 11 JOURNALIZING PAYROLL TRANSACTIONS DATE DESCRIPTION PR DEBIT CREDIT Journal entries are now made to record the payroll expenses and liabilities.
JOURNALIZING PAYROLL TRANSACTIONS JOURNALIZING PAYROLL TRANSACTIONS DATE DESCRIPTION PR DEBIT CREDIT DATE DESCRIPTION PR DEBIT CREDIT 1 2 3 4 5 The payroll register is the source for the journal entry. 1 2 3 4 5 Dec. 19 Wages and Salaries Expense 5,835.00 GROSS PAY 6 6 7 7 8 8 9 9 10 10 11 11 JOURNALIZING PAYROLL TRANSACTIONS JOURNALIZING PAYROLL TRANSACTIONS DATE DESCRIPTION PR DEBIT CREDIT DATE DESCRIPTION PR DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 Dec. 19 Wages and Salaries Expense 5,835.00 Employee Income Tax Pay. Social Security Tax Payable Medicare Tax Payable Health Ins. Prem. Payable United Way Contrib. Pay. Each deduction is recorded in a separate liability account. 488.00 336.97 84.61 46.00 40.00 1 2 3 4 5 6 7 8 9 10 Dec. 19 Wages and Salaries Expense 5,835.00 Employee Income Tax Pay. Social Security Tax Payable Medicare Tax Payable Health Ins. Prem. Payable United Way Contrib. Pay. Cash NET PAY 488.00 336.97 84.61 46.00 40.00 4,839.42 11 11 WAGES AND SALARIES EXPENSE EMPLOYEE INCOME PAYABLE WAGES AND SALARIES EXPENSE DEBIT CREDIT EMPLOYEE INCOME PAYABLE DEBIT CREDIT Debit gross pay of employees for each pay period. Credited when federal income tax is withheld from employees.
EMPLOYEE INCOME PAYABLE (CONT.) EMPLOYEE INCOME PAYABLE DEBIT CREDIT PAYABLE PAYABLE DEBIT CREDIT Debited when withheld taxes are paid to the IRS. Both the employer and employee pay Social Security taxes. PAYABLE (CONT.) PAYABLE DEBIT CREDIT PAYABLE (CONT.) PAYABLE DEBIT CREDIT Credited when taxes are withheld from employees earnings. Also credited for taxes imposed on the employer. PAYABLE (CONT.) PAYABLE DEBIT CREDIT MEDICARE PAYABLE MEDICARE PAYABLE DEBIT CREDIT Debited when taxes are paid. WORKS EXACTLY THE SAME AS PAYABLE
5 Describe various payroll record-keeping methods. PAYROLL RECORD-KEEPING METHODS Manual system: The same information is recorded several times Can be very inefficient Payroll processing center: A business that sells payroll record-keeping services Electronic system: A computer system that performs all payroll record keeping and prepares payroll checks ELECTRONIC PAYROLL SYSTEM ELECTRONIC PAYROLL SYSTEM INPUT PROCESSING OUTPUT EMPLOYEE: INPUT PROCESSING OUTPUT EMPLOYEE: Payroll Register # HOURS WORKED Only the employee s social security number and hours worked are input each pay period. # HOURS WORKED COMPUTER Paychecks Employee Earnings Record