Payroll Accounting 2009
Bernard J. Bieg and Judith A. Toland
ANALYZING & JOURNALIZING
PAYROLL TRANSACTIONS
Developed by Lisa Swallow, CPA CMA MS

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

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*
Employee Earnings Record used to track
cumulative totals (wages and taxes)
 Enter row of data 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
 Prepare payroll analyses - various internal and
external reports


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Next screens show how to enter information
into accounting system
Gross payroll is debited
Each withholding tax is a liability
 Advanced

EIC reduces FIT Payable
All other payroll deductions are liabilities as
well

Any deduction that the ER makes from EE
paycheck goes into a liability account (because
they owe it to someone) such as:
 Group
life insurance premiums
 Health insurance premiums
 Purchase government savings bonds
 Union dues
 Deferred compensation (contributions to pension
plan)
 Child support/other garnishments

A creditor can, through the courts, seek repayment of
his/her money by garnishment


Employer is required to comply with garnishment order
ER must withhold funds from EE’s paycheck and
submit it to appropriate authorities
Child support (see next slide)
 Creditor garnishments limited depending upon state
 Administrative wage and student loan garnishments
limited to 15% of disposable earnings



Family Support Act of 1988 requires immediate
withholding for child- support payments

ER 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 be
as high as 50-65% of disposable earnings



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 EEs in company’s
plan and deduct contributions from pay
 Cash/check
 Electronic payment methods
 EFTS (Electronic funds transfer system)
 Distribute electronic pay stub
 Pay Cards
 Cards that allow ER to deposit payroll into prepaid
card; card then utilized like debit or credit card
 As of 2006, 30 states allow their use
 Final pay
 Many states set time limit between termination and
final wage pay out
 CA and MI require immediate payment if EE is fired


Journal Entry #1 - Record gross wages,
withholdings and net pay
Journal Entry #2 - Record employer 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).
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
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Debit Wage Expense for gross payroll
Credit each withholding account - they are all liabilities
Credit cash (or wages payable) for net payroll
Gross
OASDI
1000.00
62.00
845.00
52.39
$ 1,845.00 $ 114.39
$
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
Journal entry #1
Wage Expense
1845.00
OASDI Payable
HI Payable
FIT Payable
SIT Payable
Insurance Payable
Cash
114.39
26.75
174.00
50.00
191.00
1,288.86
Net
716.50
572.36
$ 1,288.86


Debit Payroll Tax Expense for total of all payroll taxes that ER pays
Credit each account - they are all liabilities
Payroll for Period Ended
EE
A
B
Total
$
5/15/2008
0.8%
2.8%
Gross
FUTA Wages SUTA Wages
1,000.00
800.00
845.00
215.00
845.00
1,845.00 $
215.00 $
1,645.00
Tax
$
1.72
$
46.06
6.2%
OASDI Wages
1,000.00
845.00
$
1,845.00
1.45%
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
FUTA Payable
SUTA Payable
OASDI Payable
HI Payable
188.92
1.72
46.06
114.39
26.75


Look in general ledger, in each applicable
liability account, for amount due
Deposit 941 taxes
OASDI Payable
228.78
Note: Don’t forget to double
OASDI and HI
HI Payable
FIT Payable
53.50
174.00
Cash

Deposit state income tax
SIT Payable
Cash

456.28
50.00
50.00
Deposit SUTA
SUTA Payable
Cash
46.06
46.06

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 are calculated based on employment
classification - per $100 of 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


Debit Work Comp. Insurance Expense for premium paid
Credit Cash (if paying) or Insurance Payable (if accruing)
Payroll for Period Ended 5/15/08
EE
A
B
Total
Gross
Position
1,000.00 Fabricator
845.00 Administrator
$ 1,845.00
Per $100 of payroll
Work Comp. Rate
9.08
1.05
Journal entry
Workers’ Comp. Insurance Expense
Cash or Insurance Payable
Premium
90.80
8.87
$
99.67
99.67
99.67

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Accrued wages should be recorded for wages earned
by workers but not yet paid;
To record unpaid wages
Wage Expense
Wages Payable

1589.96
1589.96
Accrued vacation pay should be recorded for
amount of vacation pay owed employees

Many ER’s now merging sick time and vacation time
Vacation Benefits Expense
Vacation Benefits Payable
520.00
520.00
Account Title
Normal Balance
Type of Account
FIT Payable
Credit
Liability
SIT Payable
Credit
Liability
Insurance Payable
Credit
Liability
Union Dues Payable
Credit
Liability
Wages Payable
Credit
Liability
Vacation Benefits
Payable
Credit
Liability
Account Title
Normal Balance
Type of Account
Wage Expense
Debit
Expense
Payroll Tax Expense
Debit
Expense
Workers’
Compensation
Insurance Expense
Debit
Expense
Vacation Expense
Debit
Expense
OASDI Payable
Credit
Liability
HI Payable
Credit
Liability
FUTA Payable
Credit
Liability
SUTA Payable
Credit
Liability