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Unit 8 Paying Employees McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-3 Paying Employees- Cash Paying employees in cash: –On payday: employee’s received a pay envelop filled with the appropriate amount of currency and coins to equal the amount of net pay. –Very small number of businesses pay in cash. –Workers paid in cash: Farm workers day laborers. door-to-door salespeople Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-4 Paying Employees Paying employees in cash: –requires a good deal of work and involves considerable risk. –it is necessary to withdraw a large sum of money from the bank –cash on hand in the business- possibility of theft. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-5 Paying Employees Paying employees by check: –safer, –easier, –Efficient. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-6 Paying Employees-Check Paying employees by check: –checks are written: by hand typed by small accounting package -QuickBooks, Quicken, Peachtree Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-7 Paying Employees Payroll Check Format: Varies from business to business statement of earnings and deductions is attached at the top of the check. referred to as a voucher check. checks are typically printed two to a page on loose forms, Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-8 Paying Employees Payroll Check Format: Varies from business to business statement of earnings and deductions is attached at the top of the check. referred to as a voucher check. checks are typically printed two to a page on loose forms, A check register: –is used to keep a records of: all the checks issued, all the deposits made, and the balance of the account.

8-9 Paying Employees Payroll Checks Internal controls: –checks are prenumbered. –if any checks are voided because of mistakes they are kept on file so that all check numbers can be accounted for. –If checks with stubs are used: the information is recorded on a check stub. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-10 Paying Employees Payroll Checks Internal controls (Cont.) : –the person who prepares the payroll checks is not the one who signs them. –the signature line is left blank until all checks have been completed and verified –Print the words “Requires two signatures” or similar restriction. – use: “Void if not cashed within 60 days” statement. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-11 Paying Employees Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-12 Paying Employees- Internal Control Payroll Checks Internal controls (Cont.) : –A signed receipt should be obtained for any employee who is paid in cash. This receipt must be kept as part of your proof of payment. –The establishment of a separate checking account that is used only for payroll. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-13 Paying Employees- Internal Control Payroll Checks Internal controls (Cont.) : –prenumbered checks. –Limited access to the payroll checks. –Monthly reconciliation of the payroll checking account –Keep bank reconciliation and cancelled checks in a secure location. –company policy on where and how long voided checks are kept. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-14 Paying Employees- Internal Control Payroll Checks Internal controls (Cont.) : –Separate duties for: authorizing payroll, writing the payroll checks, and distributing the payroll checks. –The firm’s payroll records should be periodically audited by an independent accountant outside the company. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-15 Use of Special Payroll Account Small business: –usually issue payroll checks from its regular checking account. Large firms: –efficient to use a separate checking account –easier to reconcile –provides better control over payroll transactions –Transfer only the balance that is intended to cover checks Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-16 Preparing Payroll Checks Writing Checks by Hand: –Handwritten checks must be prepared in ink –no erasures should be permitted. – if there is a mistake on a check: it must be voided and a new check written – words and figures must be entered carefully and accurately Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-17 Preparing Payroll Checks Safety procedures: –Employee name: identified as fully as possible. name is written in a manner that it would be difficult to alter name is placed immediately after the words “Pay to the order of,” a wavy line is used to fill in the remaining space behind the number Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-18 Preparing Payroll Checks Safety procedures: –The numerical amount is written close to the dollar sign. amount in words is also written in such a way as to prevent changes. words should start exactly at the beginning of the area provided a wavy line is used to fill the remaining space before the word “Dollars.” Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-19 Preparing Payroll Checks Voiding Checks: –the word “VOID” is written in large letters across the face of the check –the signature line is torn or cut off. –a notation is made in the check register or on the check stub to show that the check was voided. –the voided check is filed so that it can be accounted for. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-20 Preparing Payroll Checks Verifying the Accuracy of Checks –Checks: compared with the payroll register to make sure that the names and amounts are correct. final verification of the figures: – by adding the amounts of all the checks on a calculator – and comparing the total with the total of the Net Pay column in the payroll register. compare the checks with the entries in the check register to verify that all amounts were recorded correctly. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-21 Paying by Direct Deposit Direct Deposit: –An increasingly popular method –How it works? The firm’s bank will make the transfers to the employee’s personal bank account –Advantages: Do not need to issue payroll checks, employees have money available immediately No need to cash or deposit their checks. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-22 Paying by Direct Deposit Employee Statements and Direct Deposit: –Employer is required to issue: An employee’s statement of earnings and statement of deductions. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-23 Paying by Direct Deposit Employee Statements and Direct Deposit: –Statement: is a verification of the deposit has been made serves as the employee’s payroll record. Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8-24 Unit Summary

8-25 Questions?