1. CHAPTER 6 ANALYZING AND JOURNALIZING PAYROLL TRANSACTIONS
Developed by Lisa Swallow, CPA CMA MS

2. Accounting for Payroll Transactions
Payroll requires entering data (in order) in the following places:
Payroll Register
Employee Earnings Records
General Journal
journalize wages
journalize payroll taxes and workers comp
journalize period end accruals
Post to General Ledger

3. *Use payroll register to journalize*
Payroll register shows (in rows) by employee:
gross wages
taxes withheld and other deductions
net pay
Payroll register shows (in columns)
total of gross wages, each deduction and net
“Foot” or prove payroll register by ensuring that columns and rows all total to bottom right hand number
*Use payroll register to journalize*

4. Employee Earnings Records
Employee Earnings Record used to track cumulative totals (wages and taxes)
Enter row of data 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
prepare various internal and external reports

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

6. 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
Wage Expense
OASDI Payable
HI Payable
FIT Payable
SIT Payable
Insurance Payable
Cash ,288.86

7. Journal Entry #2
Debit Payroll Tax Expense for total of all payroll taxes that ER pays
Credit each account - they are all liabilities
Calculate all employer taxes utilizing varying wage bases and percentages, then make
Journal entry
Payroll Tax Expense
FUTA Payable
SUTA Payable
OASDI Payable
HI Payable

8. Recording Deposit of Payroll Taxes
Look in general ledger, in each applicable liability account, for amount due
Deposit 941 taxes
Deposit state income tax
Deposit SUTA

9. Workers Compensation
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 are calculated based on employment classification - per $100 of payroll
pay premiums in advance based on projected wages
then, at year end, report actual wages and pay additional premium or receive credit towards next year

10. Recording Workers Compensation
Debit Work Comp Insurance Expense for premium paid
Credit cash (if paying) or insurance payable (if accruing)
Journal entry
Workers Comp Insurance Expense
Cash or Insurance Payable

11. Journalize Period End Accruals
Accrued Wages should be recorded for wages earned by workers but not yet paid (gross)
Wage Expense
Wages Payable
Accrued Vacation Pay should be recorded for amount of vacation pay owed employees
Vacation Benefits Expense
Vacation Benefits Payable

12. Other Deductions from Payroll
Any deduction that the ER makes from EE paycheck goes into a liability account, because they owe it to someone, such as:
Health insurance premiums
Purchase EE or HH government bonds
Union dues
Deferred compensation (contributions to pension plan)

13. Garnishments
A creditor can, through the courts, seek repayment of his/her money by garnishment
Employer is required to comply with garnishment order
ER must withhold funds from EE’s paycheck and submit it to appropriate authorities
cannot legally withhold more than 25% of disposable income (after tax earnings)

14. Child Support
Family Support Act of 1988 requires immediate withholding for child support payments
Maximum amount that can be withheld from a person’s weekly disposable wages varies according to different support orders, but can be as high as 50-65%

15. Summary of Accounts Used
Account Title
Normal Balance
Type of Account
Wage Expense
Debit
Expense
Payroll Tax Expense
Work Comp Insurance Exp
Vacation Expense
OASDI Payable
Credit
Liability
HI Payable
FUTA Payable
SUTA Payable

16. Summary of Accounts Used (Continued)
FIT Payable
Credit
Liability
SIT Payable
Insurance Payable
Union Dues Payable
Wages Payable
Vacation Benefits Payable