Appendix D
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Appendix
D
Payroll Accounting
Kimmel Accounting, Second Edition
Appendix D
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Study Objectives
1.
Discuss the objectives of internal control for
payroll.
2. Compute and record the payroll for a pay period.
3. Describe and record employer payroll taxes.
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Payroll Accounting
The term “payroll” pertains to both:
Salaries - managerial, administrative, and sales
personnel (monthly or yearly rate).
Wages - store clerks, factory employees, and
manual laborers (rate per hour).
Determining the payroll involves computing three
amounts: (1) gross earnings, (2) payroll deductions,
and (3) net pay.
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Internal Control for Payroll
As applied to payroll, the objectives of internal
control are
1. to safeguard company assets against
unauthorized payments of payrolls, and
2. to ensure the accuracy and reliability of the
accounting records pertaining to payrolls.
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SO 1 Discuss the objectives of internal control for payroll.
Internal Control for Payroll
Internal control feature:
Human Resources
department documents and
authorizes employment.
Fraud prevented:
Fictitious employees
being added to payroll.
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SO 1 Discuss the objectives of internal control for payroll.
Internal Control for Payroll
Internal control feature:
Supervisors monitor hours
worked through time cards
and time reports.
Fraud prevented:
Employee paid for hours not
worked.
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SO 1 Discuss the objectives of internal control for payroll.
Internal Control for Payroll
Internal control feature:
Two (or more) employees
verify payroll amounts;
supervisor approves.
Fraud prevented:
Payroll calculation errors
and inappropriate amounts
being paid to an employee.
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SO 1 Discuss the objectives of internal control for payroll.
Internal Control for Payroll
Internal control feature:
Treasurer signs and
distributes prenumbered
checks.
Fraud prevented:
Checks lost through theft;
falsely endorsed used to
pay for hours not worked.
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SO 1 Discuss the objectives of internal control for payroll.
Determining the Payroll
Gross Earnings
Total compensation earned by an employee (wages
or salaries, plus any bonuses and commissions).
Illustration D-3
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SO 2 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:
Voluntary:
FICA tax
Charity
Federal income tax
Retirement
State income tax
Union dues
Health and life insurance
Pension plans
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SO 2 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:
 Supplemental retirement,
employment disability, and
medical benefits.
FICA tax
Federal income tax
State income tax
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Social Security taxes
 In 2007, the rate was
7.65% (6.2% Social Security
plus 1.45% Medicare) on the
first $97,500 of gross
earnings for each employee.
SO 2 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
 Employers are required to
Mandatory:
FICA tax
Federal income tax
State income tax
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withhold income taxes from
employees pay.
 Withholding amounts are
based on gross wages and
the number of allowances
claimed.
SO 2 Compute and record the payroll for a pay period.
Determining the Payroll
Employee must complete an Employee’s Withholding
Allowance Certificate (Form W-4).
Illustration D-5
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SO 2 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:
FICA tax
Federal income tax
State income tax
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 Most states (and some
cities) require employers
to withhold income taxes
from employees’ earnings.
SO 2 Compute and record the payroll for a pay period.
Determining the Payroll
Net Pay
Gross earnings minus payroll deductions.
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Illustration D-7
SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Maintaining Payroll Department Records
Employer required by law to keep a cumulative
record of each employee’s gross earnings,
deductions, and net pay during the year.
Illustration D-8
Employee earnings record
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SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Maintaining Payroll Department Records
Employer required by law to keep a cumulative
record of each employee’s gross earnings,
deductions, and net pay during the year.
Illustration D-9
register
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Payroll
SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Recognizing Payroll Expenses and Liabilities
Exercise: Joyce Kieffer’s regular hourly wage rate is
$15, and she receives a wage of
times the regular
hourly rate for work in excess of 40 hours. During a
March weekly pay period Joyce worked 42 hours. Her
gross earnings prior to the current week were $6,000.
Joyce is married and claims three withholding allowances.
Her only voluntary deduction is for group hospitalization
insurance at $25 per week.
Instructions: Record Joyce’s pay, assuming she is an
office computer operator.
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SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Exercise: Record Joyce’s pay, assuming she is an office
computer operator.
Wages Expense
645.00 *
FICA Taxes Payable
51.60 **
Federal Income Taxes Payable
55.00 ***
State Income Taxes Payable
12.90 ****
Insurance Payable
25.00
Wages Payable
*
(40 x $15) + (2 x $22.50) = $645
** $645 x 8% = $51.60
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500.50
*** Table, next slide
**** $645 x 2% = $12.90
SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Exercise: Joyce is married and claims three withholding
Illustration D-6
allowances.
Federal
Income Tax
Withholding
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SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Recording Payment of the Payroll
Using the facts from the previous Exercise.
Wages Payable
Cash
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500.50
500.50
SO 2 Compute and record the payroll for a pay period.
Employer Payroll Taxes
Payroll tax expense results from three taxes that
governmental agencies levy on employers.
 Same rate and maximum
These taxes are:
earnings as the employee’s.
FICA tax
Federal
unemployment tax
State
unemployment tax
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 In 2007, the rate was
7.65% (6.2% Social Security
plus 1.45% Medicare) on the
first $97,500 of gross
earnings for each employee.
SO 3 Describe and record employer payroll taxes.
Employer Payroll Taxes
Payroll tax expense results from three taxes that
governmental agencies levy on employers.
 FUTA tax rate is 6.2% of
These taxes are:
FICA
Federal
unemployment tax
State
unemployment tax
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first $7,000 of taxable
wages.
 Employers who pay the
state unemployment tax on a
timely basis will receive an
offset credit of up to 5.4%.
Therefore, the net federal
tax rate is generally 0.8%.
SO 3 Describe and record employer payroll taxes.
Employer Payroll Taxes
Payroll tax expense results from three taxes that
governmental agencies levy on employers.
These taxes are:
FICA
Federal
unemployment tax
State
unemployment tax
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 SUTA basic rate is usually
5.4% on the first $7,000 of
wages paid.
SO 3 Describe and record employer payroll taxes.
Employer Payroll Taxes
Exercise: According to a payroll register summary of
Ruiz Company, the amount of employees’ gross pay in
December was $850,000, of which $90,000 was not
subject to FICA tax and $750,000 was not subject to
state and federal unemployment taxes.
Instructions:
Prepare the journal entry to record December payroll tax
expense. Use the following rates: FICA 8%, state
unemployment 5.4%, federal unemployment 0.8%.
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SO 3 Describe and record employer payroll taxes.
Employer Payroll Taxes
Exercise: Prepare the journal entry to record December
payroll tax expense. Use the following rates: FICA 8%,
state unemployment 5.4%, federal unemployment 0.8%.
Payroll Tax Expense
645.00
FICA Taxes Payable
60,800 *
State Unemployment taxes Payable
Federal Unemployment Taxes Payable
*
$760,000 x 8% = $60,800
5,400 **
800 ***
*** $100,000 x .8% = $5,400
** $100,000 x 5.4% = $5,400
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SO 3 Describe and record employer payroll taxes.
Employer Payroll Taxes
Question
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.
d. FICA taxes.
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SO 3 Describe and record employer payroll taxes.
Filing and Remitting Payroll Taxes
Companies must report FICA taxes and federal
income taxes withheld no later than one month
following the close of each quarter.
Companies generally file and remit federal
unemployment taxes annually on or before January 31
of the subsequent year. Companies usually file and pay
state unemployment taxes by the end of the month
following each quarter.
Employers must provide each employee with a Wage
and Tax Statement (Form W-2) by January 31.
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SO 3 Describe and record employer payroll taxes.
Copyright
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