CHAPTER TWENTY SIX
PAYROLL
PROCEDURES
26-3
PAYROLL PROCEDURES
Chapter Outcomes:
1. Compute gross earnings using different pay
plans.
2. Read a time card and compute regular hours
and overtime hours.
3. Compute deductions and net pay.
4. Prepare a payroll register and employee
earnings record.
5. Journalize the payroll and payroll taxes.
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Pay Plans
Salary Plan
Hourly-Rate Plan
Piece-Rate Plan
Commission Plan
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Computing Gross Earnings
Gross earnings may include both
regular earnings and overtime
earnings.
When an employee works over 40
hours, overtime must be paid at a
rate of at least 1.5 times the regular
rate.
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Computing Gross Earnings (continued)
Regular hours are multiplied by the
hourly rate. Hours x rate = pay
Overtime hours worked are
multiplied by the overtime rate.
Hours x rate = OT
Regular earnings and overtime
earnings are added together to
calculate gross pay.
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Determining Employee Deductions
Federal Income Tax Withholding
Social Security Tax (FICA)
Medicare Tax
Other Deductions
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Computing Net Pay
Gross Earnings - Deductions = Net Pay
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Preparing Payroll Records
Many businesses use a payroll
register to record the pay to
employees.
A payroll register includes the
information about the employee and
his/her earnings--marital status,
withholding allowance, hours worked,
earnings, deductions, net pay, and
check number.
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Paying the Employees
Each employee should get a
paycheck along with an explanation
of any deductions.
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Recording the Payroll
In the General Journal, the
transaction would look like this:
Date
Description
Post
Ref
Debit
Credit
20 xx
May
22
Salaries and Wages Expense
Employee Income Tax Payable
Social Security Tax Payable
Medicare Tax Payable
Salaries and Wages Payable
1,799
103
112
26
1,558
Payroll for the w eek ended May 22
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Recording the Employer’s Payroll
Taxes
Most businesses are subject to
several payroll taxes -- the
employer’s social security tax,
Medicare tax, federal unemployment
tax, and state unemployment tax.
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Recording the Employer’s Payroll
Taxes (continued)
The General Journal entry would
look like:
Post
Date
Description
Ref
Debit Credit
20 xx
May
22
Payroll Taxes Expense
Social Security Tax Payable
Medicare Tax Payable
Federal Unemployment Tax Payable
State Unemployment Tax Payable
236.53
111.52
26.08
14.39
84.54
Employer's taxes on May 22 payroll
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Payroll Tax Forms
A number of payroll tax forms are
required by the federal government.
•Employers Quarterly Federal Tax Return (Form 941)
•Wage and Tax Statement (Form W-2)
•Transmittal of Income and Tax Statements (Form W-3)
•Annual Federal Unemployment Tax Return (Form 940)
•Federal Tax Deposit (Form 8109) accompanies each
payment of Federal Taxes.
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Accounting Terminology
•Direct deposit
•Payroll taxes
•Employee earnings
record
•Piece-rate plan
•Gross earnings
•Salary plan
•Hourly-rate plan
•Time cards
•Net pay
•Time clock
•Overtime
•Time sheets
•Pay statement
•Year-to-date earnings
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•Salary commission plan
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Chapter Summary
• The total amount an employee earns
is known as gross earnings.
• Gross earnings may include both
regular earnings and overtime
earnings.
• Net pay is gross earnings less
deductions.
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Chapter Summary (continued)
• The amount of federal income tax
withheld for each employee
depends on gross earnings,
marital status, and the number of
withholding allowances.
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Chapter Summary (continued)
• By law, businesses must keep
detailed records of the hours worked,
gross earnings, deductions, and net
pay of their employees.
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Chapter Summary (continued)
•After the payroll is computed, it
must be recorded in the General
Journal. When the employees are
paid, an entry is made in the cash
payments journal.
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Chapter Summary (continued)
•Most businesses are subject to
several payroll taxes -- the
employer’s social security and
Medicare tax, federal unemployment
tax, and state unemployment tax
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Chapter Summary (continued)
• Businesses must prepare a
number of payroll tax forms for
the federal government. Other
payroll tax forms may be required
by state and city tax agencies.
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Investigating on the Internet
As a research assignment, access the IRS
web site and report those sources of
information that might concern payroll
taxes.
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Topic Quiz
Answer the following true/false questions:
1. The total amount an employee earns is
known as net earnings.
FALSE
2. Most businesses are subject to payroll
taxes.
TRUE
3. Not all businesses must keep detailed
records of employee pay.
FALSE
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1. The total amount an employee earns is
known as net earnings.
FALSE
The total amount an employee earns is known as
gross earnings.
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(Return to Topic Quiz)
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26-25
3. Not all businesses must keep detailed records
of employee pay.
FALSE
All businesses must keep detailed records of
employee pay.
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(Return to Topic Quiz)
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