Payroll Accounting 2012
Bernard J. Bieg and Judith A. Toland
CHAPTER 6
ANALYZING & JOURNALIZING
PAYROLL TRANSACTIONS
Developed by Lisa Swallow, CPA CMA MS
Learning Objectives
 Record
payrolls in appropriate records
 Understand various deductions taken from employees’
gross pay
 Journalize entries to record payroll
 Post to general ledger
 Explain recording of payroll tax deposits
 Understand need for end-of-period adjustments
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
Payroll Register
First – record info in payroll register
Lists
employees in rows and shows following
information for each
 Gross
wages
 Taxes withheld and other deductions
 Net pay
 Payroll
 Total
register shows (in columns)
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*
LO-1
Employee’s Earnings Record
Second – transfer info to employees’ earnings records
Used
to track cumulative totals (wages and taxes)
 Enter
row of data for 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
 Used
to prepare payroll analyses - various internal and external
reports
 Might
be used to settle employee grievances
LO-1
Recording Gross Payroll & Withholdings
Third - enter information into accounting system
Gross payroll is debited
 Each withholding tax is a liability
 All other payroll deductions are liabilities as well

LO-1
Recording Gross Payroll & Withholdings
 Any
deduction that the employer makes from
employee’s 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
LO-2
Garnishments

A creditor can, through the courts, seek repayment of
his/her money by garnishment
 Employer

is required to comply with garnishment order
Employer must withhold funds from employee’s paycheck
and submit it to appropriate authorities
 Garnishments
limited based upon Consumer Credit Protection
Act (CCPA) and vary for
 Child
support (see next slide)
 Creditors
 Administrative wages
 Student loans
Note: Chapter13 bankruptcy orders have
highest priority over all other claims
LO-2
Child Support

Family Support Act requires immediate withholding
for child-support payments


Child support takes precedence over most deductions

Employer 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 5565% of disposable earnings
LO-2
Federal Tax Levy
Take second priority after wages withheld for child
support (if received prior to tax levy)
 These levies are suspended if debtor declares bankruptcy
 Amount of taxpayer’s standard deduction is only amount
that is exempt from a federal tax levy

 $5,800
for single and $11,600 for married
IRS publishes tables that can be used to figure amount
exempt from tax levies
 Employer required to withhold until Form 668-D (Release
of Levy/Release of Property from Levy) received

LO-2
Pension & Retirement Contributions
 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 employees in
company’s plan and deduct contributions from pay
LO-2
Methods of Paying Wages & Salaries
 Check

Sometimes separate payroll account maintained to make
bank reconciliation process easier
 Electronic

EFTS (electronic funds transfer system)


payment methods
Electronic records created showing bank, account # and net pay
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

 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
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
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
Gross
1,000.00
845.00
$ 1,845.00
OASDI
62.00
52.39
$ 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
Net
716.50
572.36
$ 1,288.86
Journal entry #1
Wage Expense
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
Employees FIT Payable
SIT Payable
Group Insurance Payments W/H
Cash
1,845.00
114.39
26.75
174.00
50.00
191.00
1,288.86
LO-3
Journal Entry #2


Debit Payroll Tax Expense for total of all payroll taxes that employer
pays
Credit each account - they are all liabilities
Payroll for Period Ended
EE
A
B
Total
$
5/15/2011
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
188.92
FUTA Taxes Payable
SUTA Taxes Payable
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
1.72
46.06
114.39
26.75
LO-3
Recording Deposit of Payroll Taxes
Look in general ledger for amounts due

Deposit 941 taxes

Deposit state
income tax

Deposit SUTA
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
Employee FIT Payable
Cash
SIT Payable
Cash
50.00
50.00
SUTA Taxes Payable
Cash
46.06
46.06
228.78
53.50
174.00
456.28
LO-5
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
 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
Journal Entry for Workers’ Compensation
Debit Work Comp. Insurance Expense for premium paid
Credit Cash (if paying) or Insurance Payable (if accruing)
Payroll for Period Ended 5/15/11
EE
A
B
Total
Gross
1,000.00
845.00
$ 1,845.00
Work Grade
Fabricator
Administrator
Rate per $100 Premium
9.08
90.80
1.05
8.87
$ 99.67
Journal entry
Workers’ Comp. Insurance Expense
99.67
Cash or Workers’ Comp Insurance Payable
99.67
LO-5
Journalize Period-End Accruals

Accrued wages should be recorded for wages earned by
workers, but not yet paid
Journal entry
Wage Expense
Wages Payable

1,589.96
1,589.96
Accrued vacation pay should be recorded for amount of
vacation pay owed employees - many employers now
merging sick time and vacation time
Journal entry
Vacation Benefits Expense
Vacation Benefits Payable
520.00
Note: Not necessary to accrue payroll tax expense at year-end
520.00
LO-6