Developed by Lisa Swallow, CPA CMA MS Payroll Accounting 2013 Bernard J. Bieg and Judith A. Toland CHAPTER 6 ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS Developed by Lisa Swallow, CPA CMA MS

Learning Objectives Record payrolls in appropriate records Understand various deductions taken from employees’ gross pay Journalize entries to record payroll and payroll taxes Post to general ledger Explain recording of payroll tax deposits Understand need for end-of-period adjustments

Accounting for Payroll Transactions Payroll requires entering data (in order) in the following places Payroll Register Employee Earnings Records General Journal Journalize gross wages and withholdings Journalize payroll taxes and workers’ compensation Journalize period-end accruals Post to General Ledger LO-1

Recording Gross Payroll & Withholdings Enter information into accounting system Gross payroll is debited Each withholding tax is credited to a liability All other payroll deductions are liabilities as well LO-1

Methods of Paying Wages & Salaries Check Sometimes separate payroll account maintained to make bank reconciliation process easier Electronic payment methods EFTS (electronic funds transfer system) Electronic records created showing bank, account # and net pay Pay cards allow employer to deposit payroll into prepaid card Card utilized like debit or credit card Many employees who do not have bank accounts use these Electronic paystubs alleviate need for paper paystubs Final pay Many states set time limit between termination and final wage pay out (depends upon whether worker left voluntarily) CA and MI require immediate payment if employee is fired LO-3

Journal Entries to Record Payroll Journal Entry #1 - Record gross wages, withholdings and net pay Journal Entry #2 - Record employer’s payroll tax expense These two journal entries are always the same in format. You must make both of them every time you issue any paycheck (even if cutting a check for one day’s wages, for example). LO-3

Journal Entry #1 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 Journal entry #1 Wage Expense 1,845.00 FICA Taxes Payable - OASDI 77.49 FICA Taxes Payable - HI 26.75 Employees FIT Payable 174.00 SIT Payable 50.00 Group Insurance Payments W/H 191.00 Cash 1,325.76 LO-3

Journal Entry #2 Journal entry #2 Debit Payroll Tax Expense for total of all payroll taxes that employer pays Credit each account - they are all liabilities Calculate all employer taxes utilizing varying wage bases and percentages Journal entry #2 Payroll Tax Expense 190.89 FUTA Taxes Payable 3.69 SUTA Taxes Payable 46.06 FICA Taxes Payable - OASDI 114.39 FICA Taxes Payable - HI 26.75 LO-3

Recording Deposit of Payroll Taxes Look in general ledger for amounts due Deposit 941 taxes Deposit SIT Deposit SUTA LO-5

Workers’ Compensation Insurance 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 often calculated based on employment classification – stated in terms of $100 per payroll Pay premiums in advance based on projected wages Then, at year-end, report actual wages and pay additional premium or may receive credit towards next year LO-5