© 2014 Cengage Learning. All Rights Reserved. Test Review Strategy. Understanding or Memorization: Promoting Long-Term Retention Why do we remember some lessons and forget others? Is it that some are perceived as more important, exciting, or possibly just easier to comprehend? Perhaps the answer has elements of all of those in its makeup; however, it is through true understanding—i.e., understanding rather than memorization. We don’t learn through memorization, we learn through understanding. When you go to the store to buy new smart phone, do you sit there in the store to study the instructions and ensure that you have properly memorized the correct way to use your new phone before leaving? Most people have the store associate show them the basics and then go home and use it. Through “playing” with our phone, we learn how to use it and ultimately understand the phone’s applications through its practicality. We essentially learn through understanding what we have to do to achieve our desired result. To do well in accounting, you need to work at understanding what you are learning to ensure that the concepts are retained after the course has ended. Make understanding your goal! Summary of article written by Dale Schlundt, Palo Alto History Professor Chapter 12 Vocab Test Review Chapter 12 Vocab Test Review

© 2014 Cengage Learning. All Rights Reserved. Paying Employees ●The amount paid to an employee for every hour worked is called a wage. ●A fixed annual sum of money divided among equal pay periods is called a salary. ●A commission is a method of paying an employee based on the amount of sales the employee generates. The more merchandise they sell, the more they earn. ●The total amount paid by a business for an employee’s work, earned by a wage, salary, or commission, is called total earnings. ●Net Pay: The total amount paid to employees after payroll taxes and other deductions have been deducted from total earnings. (AKA Take-home pay) SLIDE 2 Lesson 12-1

© 2014 Cengage Learning. All Rights Reserved. Paying Employees ●A pay period is the number of days or weeks of work covered by an employee’s paycheck. ●Examples of pay periods ●Every week (weekly) ●Every two weeks (biweekly) 26 paychecks per year ●Twice a month (semimonthly) 24 paychecks per year ●Once a month (monthly) SLIDE 3 Lesson 12-1

© 2014 Cengage Learning. All Rights Reserved. Paying Employees ●The total amount earned by all employees for a pay period is called a payroll. ●1 st Step in Preparing a Payroll: Calculate number of hours worked by each employees so you can multiply hours worked by their wage per hour. SLIDE 4 Lesson 12-1

© 2014 Cengage Learning. All Rights Reserved. Calculating Employee Hours Worked SLIDE 5 Lesson 12-1 Calculate regular hours. 1 1 Calculate overtime hours. 2 2 Calculate total hours: The First Step in Payroll Process 3 3 A time clock is a device used to record the dates and times of each employee’s arrivals and departures.

© 2014 Cengage Learning. All Rights Reserved. After Hours Have Been Calculated: Calculate Hourly Employee Total Earnings SLIDE 6 Lesson Calculate regular earnings 2 2 Calculate the overtime rate 3 3 Calculate overtime earnings 4 4 Calculate total earnings Regular Hours×Regular Rate= Regular Earnings 88×$15.00=$1, Regular Rate×1½=Overtime Rate $15.00×1½=$22.50 Overtime Hours×Overtime Rate=Overtime Earnings 6.5×$22.50=$ Regular Earnings×Overtime Earnings=Total Earnings $1,320.00×$146.25=$1,466.25

© 2014 Cengage Learning. All Rights Reserved. Payroll Taxes ●Taxes based on the payroll of a business are called payroll taxes. ●Payroll taxes withheld are a liability for an employer until paid to the government. They are recorded in the Federal Income Tax Payable account. ●Companies are required by law to withhold certain payroll taxes from employee salaries in all 50 states. SLIDE 7 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee’s Taxes ●A deduction from total earnings for each person legally supported by a taxpayer, including the employee, is called a withholding allowance. ●The withholding allowances of an employee affects the amount of federal income tax withheld. ●Any amount withheld from an employee’s gross earnings is called a payroll deduction. SLIDE 8 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Employee’s Withholding Allowance Certificate (form completed by employees upon hiring) SLIDE 9 Lesson 12-2 Name and Address 1 1 **Marital Status 3 3 Social Security Number 2 2 **Withholding Allowances 4 4 Signature and Date 5 5 Employer uses this information to determine the amount of federal income tax to withhold from employees’ earnings. Taxes withheld are based on withholding allowances and marital status.

© 2014 Cengage Learning. All Rights Reserved. Employee’s Income Tax Withholding—Single Persons SLIDE 10 Lesson 12-2 Single employees have more taxes withheld than married employees.

© 2014 Cengage Learning. All Rights Reserved. Employee’s Income Tax Withholding—Married Persons (The larger the number of exemptions, the smaller the amount of income tax withheld.) SLIDE 11 Lesson 12-2 Select the appropriate table 1 1 Locate employee’s total earnings 2 2 Intersection of earnings and withholding allowances 3 3

© 2014 Cengage Learning. All Rights Reserved. Employee Social Security and Medicare Tax: Paid by both employee and employer ●A federal tax paid for old-age, survivors, and disability insurance is called social security tax. ●A federal tax paid for hospital insurance is called Medicare tax. ●The total gross earnings year to date for an employee is called accumulated earnings. ●Tax Base: The maximum amount of earnings on which a tax is calculated. (Once the tax base is met, no more social security tax is deducted for the rest of the year.) SLIDE 12 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Voluntary Deductions from Earnings ●Qualified Retirement Plan: A retirement savings plan approved (it qualified) by the Internal Revenue Service that provides individuals with a tax benefit. SLIDE 13 Lesson 12-2

© 2014 Cengage Learning. All Rights Reserved. Different IRA Accounts SLIDE 14 Lesson 12-2 A 401(k) is a qualified retirement plan sponsored by an employer. Taxes on contributions are “deferred” and paid after retirement when taxes rates are lower. An individual retirement account (IRA) is a qualified retirement plan that provides most individuals with a deferred federal income tax benefit. They will pay no tax now and will pay less tax when withdrawn after retiring because tax rates will be lower when they are retired. A Roth individual retirement account (Roth IRA) is a qualified retirement plan that allows tax-free withdrawals from the retirement account after age But you pay taxes when contributing to the Roth IRA.

© 2014 Cengage Learning. All Rights Reserved. Payroll Register… SLIDE 15 Lesson 12-3 Businesses use payroll records to inform employees of their annual earnings and to prepare payroll reports for the government. Summarizes the earnings, deductions, and net pay of all employees for one pay period. Shows each employee name and number, marital status, and withholding allowances. Net Pay Column shows: Total Earnings paid after taxes and deductions.

© 2014 Cengage Learning. All Rights Reserved. Employee Records ●Employee Earnings Record: A business form used to record details of an employee’s earnings and deductions (affecting payments made to an employee). SLIDE 16 Lesson 12-3

© 2014 Cengage Learning. All Rights Reserved. Employee Earnings Records: Info for each employee record is copied from the Payroll Register. SLIDE 17 Lesson 12-3 Beginning Accumulated Earnings Last Day of Quarter 4 4 Pay Period 2 2 Employee Personal Data Accumulated Earnings shows total earnings since the first of the year. Accumulated Earnings is used to determine if the tax base has been met for certain taxes. 5 5 Earnings, Deductions, Net Pay

© 2014 Cengage Learning. All Rights Reserved. Employee’s Payroll Check SLIDE 18 Lesson 12-4 Individual payroll checks to employees are usually written on a separate payroll checking account.

© 2014 Cengage Learning. All Rights Reserved. Electronic Funds Transfer—A computerized cash payments system. ●The payment of an employee’s net pay using electronic funds transfer is called direct deposit. SLIDE 19 Lesson 12-4 Each employee’s net pay is deposited to his or her bank account. Individual checks are not written. However, each direct deposit employee will receive a printed or electronic statement of earnings and deductions that supports the amount deposited.

© 2014 Cengage Learning. All Rights Reserved. 20 The End Thank You!