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)
•
•
Pay cards allow employer to deposit payroll into prepaid card
•
•
•
Electronic records created showing bank, account # and net pay
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
• Debit Wage Expense for gross payroll
• Credit each withholding account - they are all liabilities
• Credit cash (or wages payable) for net payroll
Gross
1,000.00
845.00
$ 1,845.00
OASDI
42.00
35.49
$ 77.49
$
HI
14.50
12.25
26.75
FIT
83.00
91.00
$ 174.00
SIT
21.00
29.00
$ 50.00
Insurance
103.00
88.00
$
191.00
Net
736.50
589.26
$ 1,325.76
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
Group Insurance Payments W/H
Cash
50.00
191.00
1,325.76
LO-3
Journal Entry #2
• Debit Payroll Tax Expense for total of all payroll taxes that employer pays
• Credit each account - they are all liabilities
EE
A
B
Total
Tax
$
Gross
FUTA Wages SUTA Wages
1,000.00
800.00
845.00
615.00
845.00
1,845.00 $
615.00 $
1,645.00
$
3.69
$
46.06
OASDI Wages
1,000.00
845.00
$
1,845.00
HI Wages
1,000.00
845.00
$
1,845.00
$
$
114.39
26.75
Calculate all employer taxes utilizing varying wage bases and percentages
Journal entry #2
Payroll Tax Expense
190.89
FUTA Taxes Payable
SUTA Taxes Payable
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
3.69
46.06
114.39
26.75
LO-3
Recording Deposit of Payroll Taxes
Look in general ledger for amounts due
• Deposit 941 taxes
• Deposit SIT
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
Employee FIT Payable
Cash
SIT Payable
Cash
191.88
53.50
174.00
419.38
50.00
50.00
• Deposit SUTA
SUTA Taxes Payable
Cash
46.06
46.06
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