Bernard J. Bieg and Judith A. Toland
PAYROLL
ACCOUNTING 2014
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ANALYZING & JOURNALIZING
PAYROLL TRANSACTIONS
Chapter 6
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Learning Objectives
1.
2.
3.
4.
5.
6.
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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Recording Gross Payroll &
Withholdings

Enter information into accounting system
◦ Salary Expense is debited
◦ Each withholding tax is credited to a liability
◦ All other payroll deductions are liabilities as
well and are credited
LO-1
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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)
 Electronic records created showing bank, account #
and net pay
LO-3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Methods of Paying Wages &
Salaries (cont.)
◦ Pay cards allow employer to deposit payroll
into prepaid card
 Card utilized like debit or credit card
 Many employees who do not have bank accounts
use these
◦ Electronic paystubs alleviate need for paper
paystubs
LO-3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Methods of Paying Wages &
Salaries (cont.)

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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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

LO-3
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service or otherwise on a password-protected website for classroom use.
Journal Entry #1
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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Journal Entry #2
Debit Payroll Tax Expense for total of all
payroll taxes that employer pays
 Credit each account - they are all
liabilities

LO-3
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Journal Entry #2
EE
A
B
Total
Tax
Gross
$
1,000.00
845.00
1,845.00
FUTA Wages
$
615.00
615.00
$
3.69
SUTA Wages
$
800.00
845.00
1,645.00
$
46.06
OASDI Wages
HI Wages
$
1,000.00
845.00
1,845.00
$
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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
Recording Deposit of Payroll
Taxes
Look in general ledger for amounts due
Deposit 941 taxes

FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
Employee FIT Payable
Cash
191.88
53.50
174.00
419.38
Deposit SIT
SIT Payable
Cash
50.00
50.00
Deposit SUTA
SUTA Taxes Payable
Cash
46.06
46.06
LO-5
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.
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
LO-5
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service or otherwise on a password-protected website for classroom use.
Workers’ Compensation
Insurance (cont.)
◦ 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
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or
service or otherwise on a password-protected website for classroom use.