Accountinggg

Bernard J. Bieg and Judith A.
Toland
PAYROLL
ACCOUNTING 2014
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website for classroom use.
ANALYZING & JOURNALIZING
PAYROLL TRANSACTIONS
Chapter 6
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Learning Objectives
1. Record payrolls in appropriate records
2. Understand various deductions taken
from employees’ gross pay
3. Journalize entries to record payroll and
payroll taxes
4. Post to general ledger
5. Explain recording of payroll tax deposits
6. 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 withholdings
 Journalize payroll taxes and workers’ compensation
 Journalize period-end accruals
◦ Post to General Ledger
LO-1
Recording Gross Payroll &
Withholdings
 Enter information into accounting system
◦ Salary Expense is debited
◦ Each withholding tax is credited to a liability
◦ All other payroll deductions are liabilities as
well and are credited
LO-1
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
LO-3
Salaries (cont.)
◦ Pay cards allow employer to deposit payroll
into prepaid card
 Card utilized like debit or credit card
 Many employees who do not have bank accounts
use these
◦ Electronic paystubs alleviate need for paper
paystubs
LO-3
Salaries (cont.)
 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
employee is fired
LO-3
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).
LO-3
Journal Entry #1
 Debit Wage Expense for gross payroll
 Credit each withholding account - they
are all liabilities
 Credit cash (or wages payable) for net
payroll
LO-3
Journal Entry #1
Gross OASDI HI FIT SIT Insurance Net
1,000.00 42.00 14.50 83.00 21.00 103.00 736.50
845.00 35.49 12.25 91.00 29.00 88.00 589.26
$ 1,845.00 $ 77.49 $ 26.75 $ 174.00 $ 50.00 $ 191.00 $ 1,325.76
Journal entry #1
Wage Expense 1,845.00
FICA Taxes Payable - OASDI 77.49
FICA Taxes Payable - HI 26.75
Employees FIT Payable 174.00
SIT Payable 50.00
Group Insurance Payments W/H 191.00
LO-3
Cash 1,325.76
Journal Entry #2
 Debit Payroll Tax Expense for total of all
payroll taxes that employer pays
 Credit each account - they are all
liabilities
LO-3
Journal Entry #2
EE Gross FUTA Wages SUTA Wages OASDI Wages HI Wages
A 1,000.00 - 800.00 1,000.00 1,000.00
B 845.00 615.00 845.00 845.00 845.00
Total $ 1,845.00 $ 615.00 $ 1,645.00 $ 1,845.00 $ 1,845.00
Tax $ 3.69 $ 46.06 $ 114.39 $ 26.75
Calculate all employer taxes utilizing varying wage bases and percentages
Journal entry #2
Payroll Tax Expense 190.89

FUTA Taxes Payable 3.69
SUTA Taxes Payable 46.06
LO-3
Recording Deposit of Payroll
Taxes
Look in general ledger for amounts due
Deposit 941 taxes
Employee FIT Payable 174.00
Cash 419.38
Deposit SIT
SIT Payable 50.00
Cash 50.00
Deposit SUTA
SUTA Taxes Payable 46.06
Cash 46.06
LO-5
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
LO-5
Workers’ Compensation
Insurance (cont.)
◦ 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
LO-5

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Tax $ 3.69 $ 46.06 $ 114.39 $ 26.75

Payroll Tax Expense 190.89

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