1. Payroll Accounting 2016 Bernard J. Bieg and Judith A. Toland
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2. ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS
Chapter 6
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3. Learning Objectives
Record payrolls in payroll registers and post to employee’s earnings records.
Understand the various deductions – both voluntary and involuntary (taxes and garnishments) – that are taken out of employees’ gross pay.
Journalize entries to record the payroll and payroll taxes.
Post to the various general ledger accounts that are used to accumulate information from the payroll entries.
Explain the recording of payroll tax deposits
Understand need for end-of-period adjustments
© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

4. 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
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

5. Payroll Register First – record info in payroll register
Lists employees in rows and shows following information for each
Gross wages
Taxes withheld and other deductions
Net pay
Payroll register shows (in columns)
Total of gross wages, each deduction and net
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6. Payroll Register (cont.)
When completed, should “foot” or prove payroll register by ensuring that columns and rows all total to bottom right hand number
*Use payroll register to journalize*
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7. Employees’ Earnings Records
Second – transfer info to employees’ earnings records
Used to track cumulative totals (wages and taxes)
Enter row of data for each pay period
Important because different wage caps for FUTA, SUTA and OASDI taxes
Need to track cumulative totals in order to issue W-2s and do quarterly SUTA reports
Used to prepare payroll analyses - various internal and external reports
Might be used to settle employee grievances
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8. Recording Gross Payroll & Withholdings
Third - 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 and are credited
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9. Recording Gross Payroll & Withholdings
Any deduction that the employer makes from employee’s paycheck goes into a liability account (because they owe it to someone) such as:
Group life insurance premiums
Health insurance premiums
Purchase of government savings bonds
Union dues
Wage garnishments
Pension and retirement contributions
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

10. Garnishments
A creditor can, through the courts, seek repayment of his/her money by garnishment
Employer is required to comply with garnishment order
Employer must withhold funds from employee’s paycheck and submit it to appropriate authorities
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

11. Garnishments (cont.)
Garnishments limited based upon Consumer Credit Protection Act (CCPA) - other than for federal tax levies
Priority for attachments are: (1) bankruptcy* (2) federal tax levy/child support (3) creditor, student loan, federal administrative wage garnishments
*Chapter13 bankruptcy orders have highest priority over all other claims
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12. Child Support
Family Support Act requires immediate withholding for child-support payments
Employer can withhold a state mandated fee for administration
Some states now require electronic submission of garnished child support payments
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

13. Child Support (cont.)
Maximum amount that can be withheld from a person’s weekly disposable earnings varies according to different support orders, but can vary between % of disposable earnings depending on other obligations and number of weeks in arrears
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14. Federal Tax Levy
Take second priority after wages withheld for child support (if received prior to tax levy)
These levies are suspended if debtor declares bankruptcy
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

15. Federal Tax Levy (cont.)
Amount of taxpayer’s standard deduction is only amount that is exempt from a federal tax levy
$6,300 for single and $12,600 for married
IRS publishes tables that can be used to figure amount exempt from tax levies
Employer required to withhold until Form 668-D (Release of Levy/Release of Property from Levy) received
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

16. Pension & Retirement Contributions
Pension plans that involve employee contributions result in liability for the employer
Recorded in payroll entry
Pension Protection Act of 2006 gives company ability to automatically enroll employees in company’s plan and deduct contributions from pay
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17. 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 number and net pay
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

18. Methods of Paying Wages & Salaries (cont.)
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
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

19. Methods of Paying Wages & Salaries (cont.)
Final pay
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
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20. 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).
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21. 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
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22. Journal Entry #1 Journal entry #1 LO-3 Wage Expense 1,845.00
FICA Taxes Payable – OASDI
FICA Taxes Payable - HI
Employees FIT Payable
SIT Payable
Group Insurance Payments W/H
Cash ,292.86
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

23. Journal Entry #2
Debit Payroll Tax Expense for total of all payroll taxes that employer pays
Credit each account - they are all liabilities
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

24. Journal Entry #2 Journal entry #2 LO-3
Calculate all employer taxes utilizing varying wage bases and percentages
Journal entry #2
Payroll Tax Expense
FUTA Taxes Payable
SUTA Taxes Payable
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
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25. Recording Deposit of Payroll Taxes
Look in general ledger for amounts due
Deposit 941 taxes
Deposit SIT
Deposit SUTA
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26. 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
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

27. Workers’ Compensation Insurance (cont.)
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
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

28. End-of-Period Adjustments
End-of-Period adjusting entries are necessary when the fiscal (accounting) period does not agree with the end of payroll period.
Adjusting entry for wages earned in one period but paid in another. (Earned $2,400 at the end of December to be paid in January when have a calendar year-end of 12/31.)
Wage Expense 2,400
Wages Payable 2,400
Note: Since no actual payment no withholding necessary.
Adjusting entry for vacation earned but to be taken in the future. (Earned $1,000 in vacation pay to be taken in two years)
Vacation Benefits Expense 1,000
Vacation Benefits Payable 1,000
Note: Postretirement Benefits such as health care and pensions also require adjustments.
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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.