Chapter 11 Payroll Accounting. 11-1 Gross Receipts Method The gross receipts method takes all the gross receipts for employees and multiplies that number.

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Presentation transcript:

Chapter 11 Payroll Accounting

11-1 Gross Receipts Method The gross receipts method takes all the gross receipts for employees and multiplies that number by 8% to determine if there is a tip shortfall. Problem Data Using the provided data, determine the amount of tips that should be allocated to each employee using the gross receipts method. Backyard Grill Restaurant Employees Gross ReceiptsTips Reported 1$ 26,000$1, ,0002, ,0003, ,0001, ,0003, ,0004,600 $214,000$15,600

11-1 Gross Receipts Method (continued) Step 1: Determine the amount of shortfall to be allocated. Indirectly Tipped Employees0 Total actual tips reported$15,600 Total tips according to 8% rule ($214,000 x 8%)$17, Total actual tips reported$15,600 Shortfall to be allocated$1,520 Total tips according to 8% rule ($214,000 x 8%)$17, Tips reported by indirectly tipped employees$ - Tips that should have been reported by tipped employees$17,120

11-1 Gross Receipts Method (continued) Step 2: Determining individual employee shortfall amounts. Employee Tips that Should Have Been Reported Gross Receipts Ratios Employee’s Share of the 8% Actual ReportedShortfall portion 1 $17,120.00X26,000/214,000=$2, $1,300.00=$ $17,120.00X42,000/214,000=$3, $2,300.00=$1, $17,120.00X39,000/214,000=$2, $3,000.00=- reported more 4 $17,120.00X28,000/214,000=$2, $1,200.00=$1, $17,120.00X38,000/214,000=$3, $3,200.00=- reported more 6 $17,120.00X45,000/214,000=$3, $4,600.00=- reported more Total$17,120.00$15,600.00$2,880.00

11-1 Gross Receipts Method (continued) EmployeeShortfall Ratio Shortfall to be Allocated Tip Allocation / 2,880.00X1,520.00= $ , / 2,880.00X1,520.00= $ X1, , / 2,880.00X1,520.00= $ X1, X - Total$1, Step 3: Allocation of shortfall.

11-2 Hours Worked Method The hours worked method takes the total hours worked and multiplies it by 8% to determine if there is a shortfall. Using the provided data, determine the amount of tips that should be allocated to each employee using the hours worked method. Problem Data Backyard Grill Restaurant Employees Hours WorkedTips Reported 120$1, , , , , , $15,600

11-2 Hours Worked Method (continued) Step 1: Determine the amount of shortfall to be allocated. Indirectly Tipped Employees0 Total actual tips reported$15,600 Total tips according to 8% rule ($214,000 x 8%)$17, Total actual tips reported$15,600 Shortfall to be allocated$1,520 Total tips according to 8% rule ($214,000 x 8%)$17, Tips reported by indirectly tipped employees$ - Tips that should have been reported by tipped employees$17,120

11-2 Hours Worked Method (continued) Step 2: Determining individual employee shortfall amounts. Employee Tips that Should Have Been Reported Gross Receipts Ratios Employee’s Share of the 8% Actual ReportedShortfall portion 1 $17,120.00X20/188=$1, $1,300.00=$ $17,120.00X38/188=$3, $2,300.00=$1, $17,120.00X30/188=$2, $3,000.00=- reported more 4 $17,120.00X25/188=$2, $1,200.00=$1, $17,120.00X35/188=$3, $3,200.00=- reported more 6 $17,120.00X40/188=$3, $4,600.00=- reported more Total$17,120.00$12,050.00$2,758.30

11-2 Hours Worked Method (continued) Step 3: Allocation of shortfall. EmployeeShortfall Ratio Shortfall to be Allocated Tip Allocation / X1,520.00= $ / X1,520.00= $ X1, / X1,520.00= $ X1, X - Total$1,520.00

11-3 Employer Payroll Taxes EMPLOYER PAYROLL TAXES CONSISTS OF: FICA TAX … 7.65% of first $84,000 of wages each year (2002). Employee must also pay this tax (maximum of $6,494.85). FEDERAL UNEMPLOYMENT TAX … Normally 0.8% on the first $7,000 of wages each year. Federal rate is 6.2% but allows the employer a maximum credit of 5.4% on the federal rate for contributions to state unemployment taxes (6.2% - 5.4% = 0.8%). STATE UNEMPLOYMENT TAX … Basic rate of 5.4% on the first $7,000 of wages each year. State rates are adjusted according to the employer’s experience rating.

11-4 Employer Payroll Entries GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 Employee Total Hours EarningsDeductionsPaid Regular Over- time Gross PayFICA Federal Income Tax State Income Tax United Fund Union Dues Total DeductionsNet Pay Check No. Wages Fisher, John Dunlop, Robert Hemander, Paul Bell, Bert Total1, , , Record: a.Payroll entry for the week ending January 14. b.Payroll taxes associated with the January 14 payroll. FICA (8%); Fed. Unemp. (.8%); State Unemp. (5.4%). c.Payment of the January 14 payroll on January 21. d.Payment of the January 14 payroll taxes on January 21.

11-4 Employer Payroll Entries (continued) Jan. 14Wages Expense2, FICA Taxes Payable Federal Income Taxes Payable State Income Taxes Payable42.36 United Fund Payable63.00 Union Dues Payable20.00 Wages Payable1, To record January 14 payroll Jan. 14Payroll Tax Expense FICA Taxes Payable Federal Unemployment Taxes Payable17.32 State Unemployment Taxes Payable To record January 14 payroll taxes Jan. 21Wages Payable1, Cash1, To record payment of January 14 payroll Jan. 21FICA Taxes Payable Federal Unemployment Taxes Payable17.23 State Unemployment Taxes Payable Cash To record payment of January 14 payroll taxes