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Appendix
D
Payroll Accounting
Financial Accounting,
Seventh Edition
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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
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
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
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
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 taxes
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 taxes
Federal income tax
State income tax
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Social Security taxes
 In 2009, the rate was
7.65% (6.2% Social Security
plus 1.45% Medicare) on the
first $106,800 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 taxes
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 taxes
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.
Illustration D-7
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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-8
Employee earnings record
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SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Recognizing Payroll Expenses and Liabilities
Illustration D-9
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SO 2 Compute and record the payroll for a pay period.
Recording the Payroll
Illustration: From the payroll register in Illustration D-9,
Academy makes a journal entry to record the payroll.
Office Salaries Expense
5,200.00
Wages Expense
12,010.00
FICA Taxes Payable
1,376.80
Federal Income Taxes Payable
3,490.00
State Income Taxes Payable
344.20
United Way Payable
421.50
Union Dues Payable
115.00
Salaries and Wages Payable
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11,462.50
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 Illustration.
Salaries and wages payable
Cash
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11,462.50
11,462.50
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 taxes
Federal
unemployment tax
State unemployment
tax
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 In 2009, the rate was
7.65% (6.2% Social Security
plus 1.45% Medicare) on the
first $106,800 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 taxes
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 taxes
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
Recording Employer Payroll Taxes
Illustration: The entire amount of gross pay ($17,210.00)
shown in the payroll register in Illustration D-9 is subject
to each of the three taxes mentioned above. Accordingly,
Academy records the payroll tax expense.
Payroll Tax Expense
2,443.82
FICA Taxes Payable
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1,376.80
Federal Unemployment Taxes Payable
137.68
State Unemployment Taxes Payable
929.34
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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