PAYROLL ACCOUNTING
Chapter 11
2013 CPP REVIEW CLASS
CHAPTER 11
Carmela Miller, CPP
howardcarmmiller@msn.com
Payroll Accounting Agenda
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Understanding Transaction/Flow
Chart of Accounts
Debit/Credit (Increase vs. Decrease)
Type of Accounts
Accruals/Reversals
T-Accounts
Financial Statements
Final Exam/Review
Accounting Principles
Accounting standards are set by FASB (Financial Accounting
Standards Board) which sets standards for transactions and
are known as GAAP (Generally Accepted Accounting
Principles)
• Business entity concept
• Continuing concern concept
• Time period concept
• Cost principle
• Objectivity principle
• Matching principle
• Realization principle
• Consistency principle
Account Classifications
5 Types of Accounts
– Assets What are some types of these Accounts?
– Liabilities
– Expenses
– Revenue
– Equity
Payroll is usually only affected by Assets,
Liabilities or Expenses.
Recording Transactions
All of a company’s transactions are recorded and
classified into various accounts using a “Double
Entry” system that is based on 2 equations:
1. ASSETS-LIABILITIES = EQUITY
This equation provides the basis for the
financial statement called a Balance Sheet.
Balance Sheet shows the company’s financial
position at a particular point in time.
Recording Transactions
2. REVENUE – EXPENSES = NET INCOME
+ NET INCOME-INCOME DISTRIBUTED +
CONTRIBUTED CAPITAL = EQUITY
This equation is the basis for 2 financial
statements, the INCOME STATEMENT and the
STATEMENT OF RETAINED EARNINGS.
Examples of Transactions
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Taking an order to purchase a truck
Manufacture of the truck
Shipping of the Truck
Receiving payment of the truck
Recording Depreciation of the truck
Transaction Flow
Debits and Credits
Debits are recorded on the Left Side of an Account
Credits are recorded on the right side of an Account
Debit
Credit
Chart of Normal Account Balances
Type of Account
Normal Account Balance
Asset
Debit
Liability
Credit
Equity
Credit
Revenue
Credit
Expense
Debit
Income Distributed
Debit
Contributed Capital
Credit
Table 11-2
Any Asset or Expense Account
Debit
Credit
Increases
Decreases
Any Liability or Revenue Account
Debit
Credit
Decreases
Increases
Transactions
Name
Date
Date
JE #_________
Acct Description
DR
1400 Computer Equip
5,200
1000 Cash
5,200
To Record purchases of 5 computer monitors
1/18/2009 2000 Accounts Payable
1,000
1000 Cash
1,000
To Record payment of A/P Chairs
1/22/2009 6400 Travel & Entertainment 550.00
2000 Accts Payable – Visa
550.00
To Record Hotel Expenses
1/29/2009 6110 Payroll Expenses
30,000
6120 Benefits
20,000
6180 Training
12,500
2100 Payroll Liabilities
62,500
CHECK
69,250
69,250
1/15/2009
CR
Transactions Cont.
NOTICE:
–Chronological Recording of daily
transactions
–Double Entry Accounting
–Debits must = Credits
–Compound Entry
General Ledger
 Record of business transactions by account to
which journal entries are periodically transferred.
 The GL keeps a running total of all the entries and
period-to-date balance for all the company’s
accounts.
 In most businesses there are a number of
subsidiary ledgers that make up the General
Ledger. (A/P, A/R, Billing, etc.)
Entries are not posted to the GL without first being
entered into a Journal/Subsidiary ledger to ensure
both debit and credit entries have been made.
Chart of Accounts
• Asset Accounts
• Liability Accounts
• Revenue Accounts
• Expense Accounts
• Equity Accounts
Type of Accounts
Asset Accounts – Anything owned by the company

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
Computers
Payroll Software
Equipment
Furniture
Cash in the payroll checking account
Petty Cash
ASSET ACCOUNTS: DEBIT = INCREASE
CREDIT = DECREASE
TYPE OF ACCOUNTS
Liability Accounts – Debts owed by the company
 Taxes withheld but not yet paid
 Contributions to a company benefit plan not yet
paid
 A leasing contract for a payroll
hardware/software system
 Accounts Payable
LIABILITY ACCOUNTS: DEBIT = DECREASE
CREDIT = INCREASE
Type of Accounts
Equity Accounts – The net worth of the
company, or the shareholders’ equity.
 Retained Earnings
 Capital Accounts
Type of Accounts
Revenue Accounts – Income recognized for
goods sold and services rendered.
 Gross Revenue
 Earned Income
 Services
REVENUE ACCOUNTS: DEBIT = DECREASE
CREDIT = INCREASE
Type of Accounts
Expense Accounts – Cost of Goods or services used
in the process of obtaining revenue for the
company.
 Salaries Expense – Employees
 Benefit Expense
 Cost of employer paid benefit programs
 Lease Expense – payments for
hardware/software system
 Depreciation Expense – Equipment
EXPENSE ACCOUNTS: DEBIT = INCREASE
CREDIT = DECREASE
Chart of Accounts
Balance Sheet
Asset Accounts
(D)
Liability Accounts
(C)
Equity Accounts
(C)
ASSETS = LIABILITY + EQUITY
Profit/Loss (P&L)
Revenue Accounts
(C)
Expense Accounts
(D)
REVENUE – EXPENSES = PROFIT (LOSS)
Ward’s Consulting
Trial Balance
December 31, 2012
Account Title
Debit
Credit
Cash
$7,000
Accounts Receivable
$3,000
Office Supplies
$3,000
Bank Loan
$5,000
Accounts Payable
$1,000
Common Stock
$10,000
Consulting Revenue
$7,000
Rent Expense
$ 600
Salaries Expense
$2,500
Supplies Used
$1,200
Utilities Expense
$ 700
TOTAL
$23,000
$23,000
Accruals and Reversals
Matching Principle – Expenses should always be
posted against Revenues they produced.
Accruals & Reversals – Record items in the
period that they occurred
Financial Statement
Income Statement
Revenue minus Expenses for a period of time.
Balance Sheet
Assets equals Liabilities plus Equity at a point in
time.
Balance Sheet
Mar 13, 13
ASSETS
Current Assets
Checking/Savings
Chase Bldg Acct
7,028.04
Chase Personal
-6,003.50
Total Checking/Savings
Total Current Assets
TOTAL ASSETS
1,024.54
1,024.54
1,024.54
LIABILITIES & EQUITY
Equity
Retained Earnings
Net Income
Total Equity
TOTAL LIABILITIES & EQUITY
1,499.85
-475.31
1,024.54
1,024.54
Profit and Loss Statement
Jan - Dec 12
Ordinary Income/Expense
Income
Rental Income
Total Income
40,000.21
40,000.21
Expense
Bank Service Charges
2.00
Insurance Expense
Building Insurance
5,626.34
Health Insurance
3,480.00
Total Insurance Expense
9,106.34
medical Expense
Reconciliation Discrepancies
Repairs and Maintenance
Small Tools and Equipment
186.39
0.00
14,784.18
133.35
Taxes
Income Taxes
Real Estate Property Taxes
Total Taxes
641.00
9,446.40
10,087.40
Utilities
Disposal Service
1,376.26
Electric
1,374.29
Gas
Phone
Water
Total Utilities
Total Expense
Net Ordinary Income
931.36
1,104.72
863.58
5,650.21
39,949.87
50.34
Other Income/Expense
Other Income
Bank Interest
0.98
Total Other Income
0.98
Net Other Income
Net Income
0.98
51.32
Expenses by Vendor
Type
Date
Nu
m
Mem
o
Account
Clr
Split
Amount
Balance
Advanced Disposall Chgo Central
Check
01/07/2013
EFT
Disposal Service
Chase Bldg Acct
Total Advanced Disposall Chgo Central
125.41
125.41
125.41
125.41
59.96
59.96
59.96
59.96
290.00
290.00
290.00
290.00
475.37
475.37
AT & T
Check
01/04/2013
EFT
Phone
Chase Bldg Acct
Total AT & T
Blue Cross Blue Shield
Check
Total Blue Cross Blue Shield
TOTAL
01/02/2013
EFT
Health Insurance
Chase Bldg Acct
General Ledger
Type
Date
Num
Name
Memo
Split
Amount
Balance
Chase Bldg Acct
7,028.04
Total Chase Bldg Acct
7,028.04
Chase Personal
-6,003.50
Total Chase Personal
-6,003.50
Accumulated Depreciation
0.00
Total Accumulated Depreciation
0.00
Furniture and Equipment
0.00
Total Furniture and Equipment
0.00
Payroll Liabilities
0.00
Total Payroll Liabilities
0.00
Tenant Security Deposits Held
0.00
Total Tenant Security Deposits Held
0.00
Opening Balance Equity
0.00
Total Opening Balance Equity
0.00
Retained Earnings
-1,499.85
Total Retained Earnings
-1,499.85
Rental Income
0.00
Deposits
0.00
Total Deposits
0.00
Rental Income - Other
0.00
Total Rental Income - Other
0.00
Total Rental Income
0.00
Test your Knowledge
• Classify each item that follows as an asset,
liability or owner’s equity
a. Cash __________
b. Loan Payable to a bank _________
c. Delivery Equipment _________
d. Account Payable to a creditor __________
e. Office Furniture _____________
f. Owner’s Financial Interest __________
g. Petty Cash ___________
h. Mortgage Payable to a bank ___________
i. FUTA Taxes Payable ____________
Payroll Accounting
Review:
The Chapter 11, go over what credits and debits,
know what are assets, liabilities and owner’s
equity. Review what is a normal balance for
your accounts.