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
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
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
Pay cards allow employer to deposit payroll into prepaid card


Card utilized like debit or credit card
Over 25% of 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
FIT Payable
Cash
SIT Payable
Cash
50.00
50.00
SUTATaxes 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
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
520.00
Note: Not necessary to accrue payroll tax expense at year-end
LO-6