Payroll Accounting Appendix F Learning Objectives After studying this chapter, you should be able to: Compute and record the payroll for a pay period. Describe and record employer payroll taxes. Discuss the objectives of internal control for payroll.

Accounting for Payroll “Payroll” pertains to both: Salaries - managerial, administrative, and sales personnel (monthly or yearly rate). Wages - store clerks, factory employees, and manual laborers (rate per hour). Determining the Payroll Involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay.

Determining the Payroll Gross Earnings Total compensation earned by an employee (wages or salaries, plus any bonuses and commissions). Illustration F-1 LO 1 Compute and record the payroll for a pay period.

Determining the Payroll Payroll Deductions Mandatory: FICA tax Federal income tax State and city income taxes Voluntary: Charity Insurance Union dues Pension plans LO 1 Compute and record the payroll for a pay period.

Determining the Payroll Payroll Deductions Social Security taxes Supplemental retirement, employment disability, and medical benefits. The rate is 6.2% for Social Security on the first $106,800 of gross earnings for each employee plus 1.45% for Medicare on the gross earnings for each employee, no limit. Mandatory: FICA tax Federal income tax State and city income taxes LO 1

Determining the Payroll Payroll Deductions Mandatory: FICA tax Federal income tax State and city income taxes Employers are required to withhold income taxes from employees’ pay. Withholding amounts are based on gross wages and the number of allowances claimed. LO 1 Compute and record the payroll for a pay period.

Determining the Payroll Payroll Deductions Mandatory: FICA tax Federal income tax State income tax Most states (and some cities) require employers to withhold income taxes from employees’ earnings. LO 1 Compute and record the payroll for a pay period.

Determining the Payroll Net Pay Gross earnings minus payroll deductions. Illustration F-7 LO 1 Compute and record the payroll for a pay period.

Recording the Payroll Maintaining Payroll Department Records LO 1 Illustration F-8 LO 1

Recording the Payroll Maintaining Payroll Department Records LO 1 Illustration F-9 LO 1

Recording the Payroll Recognizing Payroll Expenses and Liabilities Illustration: Prepare the entry Academy Company would make to record the payroll for the week ending January 14. Salaries and wages expense 17,210.00 FICA taxes payable 1,316.57 Federal income taxes payable 3,490.00 State income taxes payable 344.20 United fund contributions payable 421.50 Union dues payable 115.00 Salaries and wages payable 11,522.73 LO 1 Compute and record the payroll for a pay period.

Recording the Payroll Recording Payment of the Payroll Illustration: Prepare the entry Academy Company would make to record the payment of the payroll. Salaries and wages payable 11,522.73 Cash 11,522.73 LO 1 Compute and record the payroll for a pay period.

Recording the Payroll Illustration F-10 Paycheck and statement of earnings LO 1 Compute and record the payroll for a pay period.

Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers. These taxes are: FICA tax Federal unemployment tax State unemployment tax Same rate and maximum earnings as the employee’s. The rate is 6.2% for Social Security on the first $106,800 of gross earnings for each employee plus 1.45% for Medicare on the gross earnings for each employee, no limit. LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers. These taxes are: FICA tax Federal unemployment tax State unemployment tax FUTA tax rate is 6.2% of first $7,000 of taxable wages. Employers who pay the state unemployment tax on a timely basis will receive an offset credit of up to 5.4%. Therefore, the net federal tax rate is generally 0.8%. LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers. These taxes are: FICA tax Federal unemployment tax State unemployment tax SUTA basic rate is usually 5.4% on the first $7,000 of wages paid. LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes Illustration: Academy records the payroll tax expense associated with the January 14 payroll with the following entry. Use the following rates: FICA 8%, state unemployment 5.4%, federal unemployment 0.8%. Payroll tax expense 2,383.59 FICA tax payable 1,316.57 * State unemployment taxes payable 929.34 ** Federal unemployment taxes payable 137.68 *** * $ 17,210.00 x 7.65% = $1,316.57 ** $17,210.00 x 5.4% = $929.34 *** $17,210 x .8% = $137.68 LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes Question Employer payroll taxes do not include: Federal unemployment taxes. State unemployment taxes. Federal income taxes. FICA taxes. LO 2 Describe and record employer payroll taxes.

Filing and Remitting Payroll Taxes Companies must report FICA taxes and federal income taxes withheld no later than one month following the close of each quarter. Companies generally file and remit federal unemployment taxes annually on or before January 31 of the subsequent year. Companies usually file and pay state unemployment taxes by the end of the month following each quarter. Employers must provide each employee with a Wage and Tax Statement (Form W-2) by January 31. LO 2 Describe and record employer payroll taxes.

Filing and Remitting Payroll Taxes APPENDIX Illustration F-12

Internal Control for Payroll As applied to payroll, the objectives of internal control are to safeguard company assets against unauthorized payments of payrolls, and to ensure the accuracy and reliability of the accounting records pertaining to payrolls. LO 3 Discuss the objectives of internal control for payroll.

Filing and Remitting Payroll Taxes APPENDIX Illustration F-13

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