PAYROLL ACCOUNTING
Chapter 11
Dean H Owens, CPP
Systems Consultant – ADP
847-718-2283
Dean_owens@adp.com
Saturday, March 5th, 2011
AGENDA
•
•
•
•
•
•
•
•
Understanding Transaction/Flow
Chart of Accounts
Dr/Cr (Increase vs. Decrease)
Type of Accounts
Accruals/Reversals
T-Accounts
Financial Statements
Final Exam/Review
Transaction Journal  Ledger(G/L)  Financial Statements
Activity
Dr/Cr
Trial Balance
Balance Sheet/P&L
Transaction Flow
Examples of Transactions
•
•
•
•
•
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
Debit and Credits
Debits are recorded on the Left Side of an Account.
Credits are recorded on the Right Side of an Account.
Debit
Credit
TRANSACTIONS
Name:
Date:
Date
1/15/2009
JE # ______________
Acct.
Description
1400 Computer Equipment
1000 Cash
DR
CR
5,200.00
5,200.00
To record purchase of 5 Computer Monitors
1/18/2009
2000 Accounts payable
1000 Cash
1,000.00
1,000.00
To record payment of A/P - Chairs
1/22/2009
6400 Travel & Entertainment
2000 Accts payable - Visa
550.00
550.00
To record hotel expenses
1/29/2009
6110
6120
6180
2100
Payroll Expenses
Benefits
Training
Payroll Liabilities
30,000.00
20,000.00
12,500.00
62,500.00
To record January P/R Expenses
Check
NOTICE: -
69,250.00
69,250.00
Chronological recording of daily Transactions
Double entry accounting
Debits must = Credits
Compound Entry
General Ledger
Record of business transactions by account.
Where transactions are posted.
In most businesses there are a number of
subsidiary ledgers that make up the
General ledger. (A/P, A/R, Billing, etc)
Chart of Accounts
•
•
•
•
•
Asset Accounts
Liability Accounts
Revenue Accounts
Expense Accounts
Equity Accounts
Type of Accounts
Asset Accounts – Anything owned by the company.
- Computers
- Payroll Software
- Equipment
- Furniture
- Cash in the payroll checking account
- Petty Cash
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
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
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.
At the end of the period all of the Debits and
Credits are added up and must balance.
Financial Statements
Income Statement.
(Revenue minus Expenses)
For a period of time.
Balance Sheet.
(Assets equals Liabilities plus Equity)
At a point in time
Statement Operations
January 31, 2008
Revenue
5,000,000
Expenses
Salaries and Wages
Payroll Taxes
1,020,000
111,500
Travel & Entertainment
30,000
Rent
20,000
Office Supplies
5,000
Total Salaries & Benefits
1,186,500
Net Income before Taxes
3,813,500
Provision for Income Taxes
Net Income (Loss)
50,000
3,763,500
G & G Consulting, Inc
Balance Sheet
January 31, 2008
ASSETS
Current
Cash
3,561,750
Accounts Receivable
5,560,000
TOTAL CURRENT ASSETS
9,121,750
PROPERTY AND EQUIPMENT
Furniture, Fixtures, & Equipment
1,000,000
Accumulated Depreciation
(50,000)
PROPERTY AND EQUIPMENT, NET
950,000
TOTAL ASSETS
10,071,750
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable
55,000
Social Security Tax Payable
62,000
Medicare Tax Payable
14,500
Federal Withholding Tax Payable
61,750
State Withholding Tax Payable
20,000
Federal Unemployment Tax Payable
State Unemployment Tax Payable
Federal Inocme Taxes Payable
TOTAL CURRENT LIABILITIES
8,000
27,000
50,000
298,250
STOCKHOLDER'S EQUITY
Common Stock
10,000
Current Earnings (Loss)
3,763,500
Retained Earnings
6,000,000
TOTAL STOCKHOLDERS' EQUITY
9,773,500
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY
10,071,750
Chart of Accounts
Balance Sheet
Asset Accounts
Liability Accounts
Equity Accounts
(D)
(C)
(C)
Assets = Liab. + Equity
Profit/Loss (P&L)
Revenue Accounts
Expense Accounts
(C)
(D)
Revenue – Expense = Profit/(Loss)
Assets and Liabilities
Asset Accounts:
Debit = Increase
Credit = Decrease
Liability Accounts:
Debit = Decrease
Credit = Increase
Revenue and Expense
Revenue Accounts:
Debit = Decrease
Credit = Increase
Expense Accounts:
Debit = Increase
Credit = Decrease
Accruals and Reversals
Matching Principle – Expenses should
always be posted against Revenues they
produced.
Accruals & Reversals– record items in the
period that they occurred.
Payroll Accounting Review Questions
1.
Which of the following would not be an asset account?
–
Wages payable **
–
Work-in-process
–
Cash
–
Employee Receivables
2.
The correct entry to record a payment of the employer’s share of FICA tax is:
–
Debit payroll tax expense, credit cash **
–
Debit salary expense, credit tax withheld
–
Debit cash, credit payroll tax expense
–
Debit tax withheld, credit salary expense
3.
The financial statement that is used to evaluate the performance of a business by matching its
revenue and related expenses for a particular accounting period is a :
–
Trial Balance
–
General Ledger
–
Balance Sheet
–
Income Statement**
4.
The proper entry to record the payment of accrued wages is:
–
Debit accrued wages, credit cash**
–
Debit cash, credit accrued wages
–
Debit salary expense, credit accrued wages
–
Debit cash, credit salary expense
5.
Accounts Payable are:
–
Assets
–
Liabilities**
–
Balance sheet item
–
Equity
6.
Revenue can be obtained in the form of : (two answers)
–
Cash**
–
Accounts Payable
–
Equity
–
Accounts Receivable**
7.
Payments of Expenses decrease assets and :
–
Increase revenue
–
Decrease revenue
–
Increase Liabilities
–
Decrease owners Equity**
Questions??
Thank you . . .
Good Luck
Future CPP’s To Be !!