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
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
• 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*
LO-1
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
LO-1
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
•
LO-1
Problem
 6 – 15A
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
LO-2
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
•
•
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
LO-2
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
Maximum amount that can be withheld from a person’s
weekly disposable earnings varies according to different
support orders, but can vary between 50-65% of
disposable earnings depending on other obligations and
number of weeks in arrears
LO-2
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
• Amount of taxpayer’s standard deduction is only amount that is
exempt from a federal tax levy
•
$5,950 for single and $11,900 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
LO-2
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
LO-2
Problem
 6 – 1A , 6 – 2 A
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
Problem
 6 – 5 A, 6 – 7 A, 6 – 8 A
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
Journal Entry for Workers’ Compensation
•
•
Debit Work Comp. Insurance Expense for premium paid
Credit Cash (if paying) or Insurance Payable (if accruing)
Payroll for Period Ended 5/15/13
EE
A
B
Total
Gross
1,000.00
845.00
$ 1,845.00
Work Grade
Fabricator
Administrator
Rate per $100 Premium
9.08
90.80
1.05
8.87
$ 99.67
Journal entry
Workers’ Comp. Insurance Expense
99.67
Cash or Workers’ Comp. Insurance Payable
99.67
LO-5
Problem
 6 – 10A
Journalize Period-End Accruals
• Accrued wages should be recorded for wages earned by workers, but
not yet paid
Journal entry
Wage Expense
Wages Payable
1,589.96
1,589.96
• Accrued vacation pay should be recorded for amount of vacation pay
owed employees - many employers now merging sick time and
vacation time
Journal entry
Vacation Benefits Expense
Vacation Benefits Payable
520.00
520.00
Note: Not necessary to accrue payroll tax expense at year-end
LO-6
Problem
 6 – 16A