Transcript CHAPTER 6 ANALYZING AND JOURNALIZING PAYROLL TRANSACTIONS

CHAPTER 6
ANALYZING AND
JOURNALIZING
PAYROLL 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 wages
journalize payroll taxes and workers comp
journalize period end accruals
Post to General Ledger
Payroll 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*
Employee
Earnings 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 Payroll
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 #1
 Debit Wage Expense for gross payroll
 Credit each withholding account - they are all liabilities
 Credit cash (or wages payable) for net payroll
A
B
Total
1000.00
76.50
83.00
21.00
845.00
64.64
91.00
29.00
$ 1,845.00 $ 141.14 $ 174.00 $ 50.00 $
103.00
716.50
88.00
572.36
191.00 $ 1,288.86
Journal entry
Wage Expense
1845.00
FICA Payable
FIT Payable
SIT Payable
Insurance Payable
Cash
141.14
174.00
50.00
191.00
1,288.86
Journal Entry #2
 Debit Payroll Tax Expense for total of all payroll taxes that ER pays
 Credit each account - they are all liabilities
Payroll 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
1000.00
B
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
Calculate all employer taxes utilizing varying wage bases and percentages
Journal entry
Payroll Tax Expense
FUTA Payable
SIT Payable
OASDI Payable
HI Payable
188.92
1.72
46.06
114.39
26.75
$
26.75
Recording Deposit of
Payroll Taxes
Look in general ledger, in each applicable
liability account, for amount due
Oasdi Payable
Deposit 941 taxes
HI Payable
124.00
29.00
Deposit state income tax
SIT Payable
Cash
Deposit FUTA and SUTA
SUTA Payable
Cash
FUTA Payable
Cash
FIT Payable
Cash
18.50
18.50
5.29
5.29
85.00
238.00
43.00
43.00
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
 Debit Work Comp Insurance Expense for premium paid
 Credit cash (if paying) or insurance payable (if accruing)
Payroll for Period Ended 5/15/01
EE
A
B
Total
Gross
Position
1000.00 Fabricator
845.00 Administrator
$ 1,845.00
Journal entry
Workers Comp Insurance Expense
Cash or Insurance Payable
Per $100 of payroll
Work Comp Rate
$
9.08
$
1.05
Premium
90.80
8.87
$
99.67
99.67
99.67
Journalize Period End
Accruals
Accrued Wages should be recorded for wages
earned by workers but not yet paid (gross)
Wage Expense
Wages Payable
1589.96
1589.96
Accrued Vacation Pay should be recorded for
amount of vacation pay owed employees
Vacation Benefits Expense
Vacation Benefits Payable
520.00
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)