PAYROLL ACCOUNTING Chapter 11 2013 CPP REVIEW CLASS CHAPTER 11 Carmela Miller, CPP [email protected]

Payroll Accounting Agenda

• • • • • • • • Understanding Transaction/Flow Chart of Accounts Debit/Credit (Increase vs. Decrease) Type of Accounts Accruals/Reversals T-Accounts Financial Statements Final Exam/Review

Accounting Principles

• • • • • • • • Accounting standards are set by FASB (Financial Accounting Standards Board) which sets standards for transactions and are known as GAAP (Generally Accepted Accounting Principles) Business entity concept Continuing concern concept Time period concept Cost principle Objectivity principle Matching principle Realization principle Consistency principle

Account Classifications

5 Types of Accounts – Assets What are some types of these Accounts? – Liabilities – Expenses – Revenue – Equity Payroll is usually only affected by Assets, Liabilities or Expenses.

Recording Transactions

All of a company’s transactions are recorded and classified into various accounts using a “Double Entry” system that is based on 2 equations:

1. ASSETS-LIABILITIES = EQUITY This equation provides the basis for the financial statement called a Balance Sheet. Balance Sheet shows the company’s financial position at a particular point in time.

Recording Transactions

2.

REVENUE – EXPENSES = NET INCOME + NET INCOME-INCOME DISTRIBUTED + CONTRIBUTED CAPITAL = EQUITY This equation is the basis for 2 financial statements, the INCOME STATEMENT and the STATEMENT OF RETAINED EARNINGS.

Examples of Transactions

• • • • • Taking an order to purchase a truck Manufacture of the truck Shipping of the Truck Receiving payment of the truck Recording Depreciation of the truck

Transaction Flow

Debits and Credits

Debits are recorded on the Left Side of an Account Credits are recorded on the right side of an Account Debit Credit

Chart of Normal Account Balances

Type of Account

Asset Liability Equity Revenue Expense Income Distributed Contributed Capital

Normal Account Balance

Debit Credit Credit Credit Debit Debit Credit

Table 11-2

Any Asset or Expense Account

Debit Credit Increases Decreases

Any Liability or Revenue Account

Debit Credit Decreases Increases

Transactions Name JE #_________ Date

Date Acct Description DR CR

1/15/2009 1400 Computer Equip 5,200 1/18/2009 1000 Cash 5,200

To Record purchases of 5 computer monitors

2000 Accounts Payable 1,000 1000 Cash

To Record payment of A/P Chairs

1,000 1/22/2009 6400 Travel & Entertainment 550.00

2000 Accts Payable – Visa

To Record Hotel Expenses

550.00

1/29/2009 6110 Payroll Expenses 30,000 6120 Benefits 20,000 6180 Training 12,500 2100 Payroll Liabilities 62,500

CHECK 69,250 69,250

Transactions Cont.

NOTICE:

– Chronological Recording of daily transactions – Double Entry Accounting – Debits must = Credits – Compound Entry

  

General Ledger

Record of business transactions by account to which journal entries are periodically transferred.

The GL keeps a running total of all the entries and period-to-date balance for all the company’s accounts.

In most businesses there are a number of subsidiary ledgers that make up the General Ledger. (A/P, A/R, Billing, etc.)

Entries are not posted to the GL without first being entered into a Journal/Subsidiary ledger to ensure both debit and credit entries have been made.

Chart of Accounts

•

Asset Accounts

•

Liability Accounts

•

Revenue Accounts

•

Expense Accounts

•

Equity Accounts

Type of Accounts

Asset Accounts – Anything owned by the company

      Computers Payroll Software Equipment Furniture Cash in the payroll checking account Petty Cash

ASSET ACCOUNTS: DEBIT = INCREASE CREDIT = DECREASE

TYPE OF ACCOUNTS

Liability Accounts – Debts owed by the company     Taxes withheld but not yet paid Contributions to a company benefit plan not yet paid A leasing contract for a payroll hardware/software system Accounts Payable

LIABILITY ACCOUNTS: DEBIT = DECREASE CREDIT = INCREASE

Type of Accounts

Equity Accounts – The net worth of the company, or the shareholders’ equity.

  Retained Earnings Capital Accounts

Type of Accounts

Revenue Accounts – Income recognized for goods sold and services rendered.

   Gross Revenue Earned Income Services

REVENUE ACCOUNTS: DEBIT = DECREASE CREDIT = INCREASE

Type of Accounts Expense Accounts – Cost of Goods or services used in the process of obtaining revenue for the company.

 Salaries Expense – Employees  Benefit Expense  Cost of employer paid benefit programs  Lease Expense – payments for  hardware/software system Depreciation Expense – Equipment

EXPENSE ACCOUNTS: DEBIT = INCREASE CREDIT = DECREASE

Chart of Accounts

Balance Sheet

Asset Accounts (D) Liability Accounts (C) Equity Accounts (C)

ASSETS = LIABILITY + EQUITY Profit/Loss (P&L)

Revenue Accounts (C) Expense Accounts (D)

REVENUE – EXPENSES = PROFIT (LOSS)

Account Title

Cash Accounts Receivable Office Supplies Bank Loan Accounts Payable Common Stock Consulting Revenue Rent Expense Salaries Expense Supplies Used Utilities Expense

TOTAL

Ward’s Consulting Trial Balance December 31, 2012

Debit

$7,000 $3,000 $3,000 $ 600 $2,500 $1,200 $ 700

$23,000 Credit

$5,000 $1,000 $10,000 $7,000

$23,000

Accruals and Reversals

Matching Principle – Expenses should always be posted against Revenues they produced.

Accruals & Reversals – Record items in the period that they occurred

Financial Statement

Income Statement Revenue minus Expenses for a period of time. Balance Sheet Assets equals Liabilities plus Equity at a point in

time.

Balance Sheet

Mar 13, 13 ASSETS Current Assets Checking/Savings Chase Bldg Acct Chase Personal Total Checking/Savings 7,028.04

-6,003.50

1,024.54

Total Current Assets TOTAL ASSETS 1,024.54

1,024.54

LIABILITIES & EQUITY Equity Retained Earnings Net Income Total Equity TOTAL LIABILITIES & EQUITY 1,499.85

-475.31

1,024.54

1,024.54

Profit and Loss Statement

Jan - Dec 12 Ordinary Income/Expense Income Rental Income Total Income Expense Bank Service Charges Insurance Expense Building Insurance Health Insurance Total Insurance Expense medical Expense Reconciliation Discrepancies Repairs and Maintenance Small Tools and Equipment Taxes Income Taxes Real Estate Property Taxes Total Taxes Utilities Disposal Service Electric Gas Phone Water Total Utilities Total Expense Net Ordinary Income Other Income/Expense Other Income Bank Interest Total Other Income 40,000.21

40,000.21

2.00

5,626.34

3,480.00

9,106.34

186.39

0.00

14,784.18

133.35

641.00

9,446.40

10,087.40

1,376.26

1,374.29

931.36

1,104.72

863.58

5,650.21

39,949.87

50.34

0.98

0.98

Net Other Income 0.98

51.32

Net Income

Expenses by Vendor

Advanced Disposall Chgo Central Type Date Nu m Check Total Advanced Disposall Chgo Central 01/07/2013 EFT Mem o Account Clr Disposal Service Split Amount Chase Bldg Acct 125.41

125.41

Balance 125.41

125.41

AT & T Total AT & T Blue Cross Blue Shield Check 01/04/2013 EFT Phone Chase Bldg Acct 59.96

59.96

59.96

59.96

Total Blue Cross Blue Shield TOTAL Check 01/02/2013 EFT Health Insurance Chase Bldg Acct 290.00

290.00

475.37

290.00

290.00

475.37

Chase Bldg Acct Total Chase Bldg Acct Chase Personal Total Chase Personal Accumulated Depreciation Total Accumulated Depreciation Furniture and Equipment Total Furniture and Equipment Payroll Liabilities Total Payroll Liabilities

General Ledger

Type Date Num Name Memo Split Amount Balance 7,028.04

7,028.04

-6,003.50

-6,003.50

0.00

0.00

0.00

0.00

0.00

0.00

Tenant Security Deposits Held Total Tenant Security Deposits Held Opening Balance Equity Total Opening Balance Equity 0.00

0.00

0.00

0.00

Retained Earnings Total Retained Earnings Rental Income Deposits Total Deposits Rental Income - Other Total Rental Income - Other Total Rental Income -1,499.85

-1,499.85

0.00

0.00

0.00

0.00

0.00

0.00

•

Test your Knowledge

Classify each item that follows as an asset, liability or owner’s equity

a. Cash __________ b. Loan Payable to a bank _________ c. Delivery Equipment _________ d. Account Payable to a creditor __________ e. Office Furniture _____________ f. Owner’s Financial Interest __________ g. Petty Cash ___________ h. Mortgage Payable to a bank ___________ i. FUTA Taxes Payable ____________

Payroll Accounting

Review: The Chapter 11, go over what credits and debits, know what are assets, liabilities and owner’s equity. Review what is a normal balance for your accounts.