7 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Payroll Concepts and Procedures Chapter 7

7 - 2 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 1 Calculating overtime pay, FICA deductions for Social Security and Medicare, and federal income tax withholding.

7 - 3 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-1 (Introduction to Payroll Accounting) The Fair Labor Standards Act requires overtime pay for hours worked over 40 hours in any work week for interstate commerce businesses. Amounts over 40 hours are paid 1½ times the regular pay rate.

7 - 4 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-1 (Introduction to Payroll Accounting) Payroll taxes or income tax withholdings Payroll tax deposits Form W-4

7 - 5 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-1 (Introduction to Payroll Accounting) Withholding for Federal Insurance Contributions Act (FICA): Social Security: Employers deduct 6.2% of gross earnings up to a maximum ($87,000) base limit for each employee each year. Medicare: Employers deduct 1.45% of gross earnings from each employees paychecks every payday (there is no limit).

7 - 6 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-1 (Introduction to Payroll Accounting) Withholding for State and Local Income Taxes (SIT) requires employers to withhold taxes from employees’ paychecks for any jurisdictions that assess these taxes. Other deductions: Employees agree to voluntary deductions for items such as medical insurance, union dues, and charitable contributions.

7 - 7 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 2 Preparing a payroll register.

7 - 8 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) This is used to record cumulative and current earnings plus deductions. It provides totals needed for the computation of payroll taxes for all employees.

7 - 9 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) A separate page must be maintained for each of the employees to verify and cross-check amounts. This is the page which provides information to prepare each employee’s W-2 for the end of each calendar year.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) Allowances and marital status Cumulative (YTD) earnings Salary for pay period Regular earnings

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) Overtime earnings Gross earnings Cumulative earnings Taxable earnings

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) Taxable earnings for Social Security tax Taxable earnings for Medicare tax FICA deduction – Social Security FICA deduction – Medicare tax

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) Federal income tax (FIT) State income tax (SIT) Medical insurance Net pay

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) Check number Distribution of expense accounts

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-2 (The Payroll Process) Gross earnings$ Less: FICA – Social Security tax FICA – Medicare tax Federal income tax State income tax Medical insurance Net pay$670.99

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 3 Journalizing and posting the payroll entry from the payroll register.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-3 (Recording and Paying the Payroll) Analyst Expense Programming Expense3, FICA SS Tax Payable FICA Medicare Tax Payable Federal Income Tax Payable State Income Tax Payable Medical Insurance Payable Wages and Salaries Payable3, To record payroll for August 20, 200x

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-3 (Recording and Paying the Payroll) Payrollinformation Recorded in the payroll register Record payroll journal entry Post payroll information in the specific ledger accounts Data from register

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-3 (Recording and Paying the Payroll) The following journal entries would result in paying the payroll. Payroll Checking Cashxxx Cashxxx Wages and Salaries Payablexxx Payroll Checking Cashxxx

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Unit 7-3 (Recording and Paying the Payroll) Payroll checks show the individual employee earnings record on the paycheck stubs. This earnings record lists current and cumulative payroll information for the employee.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Learning Objective 4 Maintaining an individual employee earnings record.

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater Earnings summary Deductions Net pay Cumulative earnings (YTD) Employee Earnings Record

© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater End of Chapter 7