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Appendix E
Payroll Accounting
Learning Objectives
After studying this chapter, you should be able to:
1.
Compute and record the payroll for a pay period.
2.
Describe and record employer payroll taxes.
3.
Discuss the objectives of internal control for payroll.
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Accounting for Payroll
“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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Determining the Payroll
Gross Earnings
Total compensation earned by an employee (wages or
salaries, plus any bonuses and commissions).
Illustration E-1
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LO 1 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:
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Voluntary:

FICA tax

Charity

Federal income tax

Insurance

State income tax

Union dues

Pension plans
LO 1 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Social Security taxes
Mandatory:
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
FICA tax

Federal income tax

State income tax

Supplemental retirement,
employment disability, and
medical benefits.

The rate is 7.65% (6.2% Social
Security plus 1.45% Medicare)
on the first $106,800 of gross
earnings for each employee.
LO 1 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:

FICA tax

Federal income tax

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State income tax

Employers are required to
withhold income taxes from
employees’ pay.

Withholding amounts are
based on gross wages and the
number of allowances claimed.
LO 1 Compute and record the payroll for a pay period.
Determining the Payroll
Payroll Deductions
Mandatory:
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
FICA tax

Federal income tax

State income tax

Most states (and some
cities) require employers to
withhold income taxes from
employees’ earnings.
LO 1 Compute and record the payroll for a pay period.
Determining the Payroll
Net Pay
Gross earnings minus payroll deductions.
Illustration E-7
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LO 1 Compute and record the payroll for a pay period.
Recording the Payroll
Maintaining Payroll Department Records
Illustration E-8
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LO 1
Recording the Payroll
Maintaining Payroll Department Records
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Illustration E-9
LO 1
Recording the Payroll
Recognizing Payroll Expenses and Liabilities
Illustration: Prepare the entry Academy Company would make to
record the payroll for the week ending January 14.
Salaries and wages expense
FICA tax payable
1,316.57
Federal income tax payable
3,490.00
State income tax payable
344.20
United fund payable
421.50
Union dues payable
115.00
Salaries and wages payable
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17,210.00
11,522.73
LO 1 Compute and record the payroll for a pay period.
Recording the Payroll
Recording Payment of the Payroll
Illustration: Prepare the entry Academy Company would make to
record the payment of the payroll.
Salaries and wages payable
Cash
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11,522.73
11,522.73
LO 1 Compute and record the payroll for a pay period.
Recording the Payroll
Illustration E-10
Paycheck and
statement of
earnings
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LO 1 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.
These taxes are:
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
FICA tax

Federal
unemployment tax

State
unemployment tax

Same rate and maximum
earnings as the employee’s.

The rate is 7.65% (6.2% Social
Security plus 1.45% Medicare)
on the first $106,800 of gross
earnings for each employee.
LO 2 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:
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
FICA tax

Federal
unemployment tax

State
unemployment tax

FUTA tax rate is 6.2% of 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%.
LO 2 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:
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
FICA tax

Federal
unemployment tax

State
unemployment tax

SUTA basic rate is usually
5.4% on the first $7,000 of
wages paid.
LO 2 Describe and record employer payroll taxes.
Employer Payroll Taxes
Illustration: Academy records the payroll tax expense
associated with the January 14 payroll with the following entry.
Use the following rates: FICA 8%, state unemployment 5.4%,
federal unemployment 0.8%.
Payroll tax expense
2,383.59
FICA tax payable
1,316.57 *
State unemployment tax payable
929.34 **
Federal unemployment tax payable
137.68 ***
*
$ 17,210.00 x 7.65% = $1,316.57
**
$17,210.00 x 5.4% = $929.34
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***
$17,210 x .8% = $137.68
LO 2 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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LO 2 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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LO 2 Describe and record employer payroll taxes.
Filing and Remitting Payroll Taxes
APPENDIX
Illustration E-12
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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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LO 3 Discuss the objectives of internal control for payroll.
Filing and Remitting Payroll Taxes
APPENDIX
Illustration E-13
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Copyright
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