Accounting
Chapter 14
Section 1
o Separate payroll accounts for each employee are not kept in the general
ledger
o Accounts are kept in the general ledger to summarize total earnings and
deductions for everyone
o Payroll journal entry is based on the totals of the Earnings Total column, each
deduction column and the Net Pay column
o Totals of Regular and Overtime Earnings and Deductions Totals columns are
not used to journalize the payroll
o The total earnings column is the Salary Expense for the pay period-it is
debited
o Credit: Employee Income Tax Payable, Social Security Tax Payable, Medicare
Tax Payable, Health Insurance Premiums Payable, U.S. Savings Bond
Payable, United Way Donations Payable, Cash (Net Pay amount)-these equal
Salary Expense
o Journalize payment of a payroll to Cash Payments Journal
o Debit Salary Expense and credit about accounts
o Cash is credited on first line of entry in cash credit column
o Total Earnings = Salary Expense
o Net Pay = Credit to cash
Section 2
o Employers must pay the government the taxes withheld from employee
earnings
o Amounts withheld are liabilities until actually paid to the government
o Employers also must pay taxes of their own on behalf of the business
o Employer Social Security Tax
o Medicare Tax
o Federal Unemployment Tax
o State Employment Tax
o Employer payroll taxes expense is based on a percentage of employee
earnings
o Social Security and Medicare are the only taxes paid by both employer and
employee-employer matches employee
o Unemployment taxes are paid by employers to pay workers benefits for
limited periods of time
o Unemployment tax is applied to the first $7,000 earned by each employee for
each calendar year
o Federal unemployment tax rate is 6.2% of the first $7,000-state
unemployment tax can amount for 5.4% of this so federal unemployment tax
is .8%
o Federal Unemployment Tax
o State Unemployment Tax
o Social Security Act specifies certain standards for unemployment
compensation laws
o Journalize employer payroll taxes in General Journal
o Debit Payroll Taxes Expense and credit the four types of payroll taxes
o Salary Expenses and Payroll Expenses are recorded at the same time payroll
is journalized
Section 3
o Employees must be given an annual report of all taxes withheld by the
employer
o Amounts are obtained from employee earnings record
o Report is the W-2 must be given out by Jan. 31 of the following year
o 4 copies (A-D) prepared:
o A-goes to Social Security Administration
o B-attached to tax return
o C-kept by employee
o D-kept by employer
o If state has state income tax need extra copies
o Form 941-quarterly tax report that lists all taxes withheld-information gotten
from employee earnings record
o See page 351 for how to prepare Form 941
o Form W-3: Transmittal of Wage and Tax Statement to Social Security
Administration
o Copy A of W-2s sent by Feb. 28
Section 4
o Frequency of payments is determined by the amount owed
o If total amount paid in previous four quarters is $50,000 classified as a
monthly depositor
o Each deposit must be made by the 15th of the following month along with a
Form 8109 (Federal Tax Deposit coupon)
o Two exceptions to standard tax schedule:
o If less than $500 tax liability is accumulated in a 3 month period- may
be made quarterly
o If a tax liability of $100,000 is accumulated in 1 day must be
deposited the next banking day
o Federal Unemployment Taxes are paid quarterly with a form 8109 – 940 box
marked to indicate the type of tax
o Payment for Federal Unemployment Tax- Cash Payments Journal
o Debit
o Payment for State same as Federal and paid quarterly