Payroll Accounting, Taxes, and Reports. 2 4. Payroll Register.
F- 1. F- 2 F PAYROLL ACCOUNTING Accounting, Fifth Edition.
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Transcript of F- 1. F- 2 F PAYROLL ACCOUNTING Accounting, Fifth Edition.
F- 1
F- 2
FPAYROLL ACCOUNTING
Accounting, Fifth Edition
F- 3
After studying this chapter, you should be able to:
1. Compute and record the payroll for a pay period.
2. Describe and record employer payroll taxes.
3. Discuss the objectives of internal control for payroll.
Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives
F- 4
“Payroll” pertains to both:
Salaries - managerial, administrative, and sales personnel
(monthly or yearly rate).
Wages - store clerks, factory employees, and manual
laborers (rate per hour).
Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay..
Accounting for PayrollAccounting for PayrollAccounting for PayrollAccounting for Payroll
LO 1 Compute and record the payroll for a pay period.
F- 5
Total compensation earned by an employee (wages or
salaries, plus any bonuses and commissions).
LO 1 Compute and record the payroll for a pay period.
Illustration F-1
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
Gross Earnings
F- 6
Mandatory:
FICA tax
Federal income tax
State and City
income tax
Payroll Deductions
LO 1 Compute and record the payroll for a pay period.
Voluntary:
Charity
Insurance and Pensions
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
Other:
Union dues
F- 7
Payroll Deductions
LO 1 Compute and record the payroll for a pay period.
Social Security taxes
► Supplemental retirement,
employment disability, and
medical benefits.
► In 2012, the rate was 7.65%
(6.2% Social Security plus
1.45% Medicare) on the first
$110,100 of gross earnings
for each employee.
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
Mandatory:
FICA tax
Federal income tax
State and City
income tax
F- 8
Payroll Deductions
LO 1 Compute and record the payroll for a pay period.
► Employers are required to
withhold income taxes from
employees pay.
► Withholding amounts are
based on
1. gross earnings,
2. number of allowances
claimed, and
3. length of pay period.
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
Mandatory:
FICA tax
Federal income tax
State and City
income tax
F- 9
Employee must complete an Employee’s Withholding Allowance Certificate (Form W-4).
LO 1 Compute and record the payroll for a pay period.
Illustration F-5
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
F- 10
Payroll Deductions
LO 1 Compute and record the payroll for a pay period.
► Most states (and some
cities) require employers
to withhold income taxes
from employees’ earnings.
Mandatory:
FICA tax
Federal income tax
State income tax
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
F- 11
Gross earnings minus payroll deductions.
Net Pay
LO 1 Compute and record the payroll for a pay period.
Illustration F-7
Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll
F- 12
Employer required by law to keep a cumulative record of each employee’s gross earnings, deductions, and net pay during the year.
Maintaining Payroll Department Records
LO 1
Illustration F-8 Employee earnings record
Recording the PayrollRecording the PayrollRecording the PayrollRecording the Payroll
F- 13
Maintaining Payroll Department Records
Recording the PayrollRecording the PayrollRecording the PayrollRecording the Payroll
Illustration F-9
LO 1
F- 14 LO 1 Compute and record the payroll for a pay period.
Recording the PayrollRecording the PayrollRecording the PayrollRecording the Payroll
Recognizing Payroll Expenses and Liabilities
From the payroll register in Illustration F-9, a journal entry is made to record the payroll for the week ending January 14.
F- 15
Payroll tax expense results from three taxes that governmental agencies levy on employers.
LO 2 Describe and record employer payroll taxes.
Employer Payroll TaxesEmployer Payroll TaxesEmployer Payroll TaxesEmployer Payroll Taxes
These taxes are:
FICA tax
Federal
unemployment tax
State
unemployment tax
► Same rate and maximum
earnings as the employee’s.
► In 2012, the rate was 7.65%
(6.2% Social Security plus
1.45% Medicare) on the first
$110,000 of gross earnings
for each employee.
F- 16 LO 2 Describe and record employer payroll taxes.
Employer Payroll TaxesEmployer Payroll TaxesEmployer Payroll TaxesEmployer Payroll Taxes
► FUTA tax rate is 6.2% of first
$7,000 of taxable wages.
► Employers who pay the state
unemployment tax on a timely
basis will receive an offset
credit of up to 5.4%.
Therefore, the net federal tax
rate is generally 0.8%.
These taxes are:
FICA tax
Federal
unemployment tax
State
unemployment tax
Payroll tax expense results from three taxes that governmental agencies levy on employers.
F- 17 LO 2 Describe and record employer payroll taxes.
Employer Payroll TaxesEmployer Payroll TaxesEmployer Payroll TaxesEmployer Payroll Taxes
► SUTA basic rate is usually
5.4% on the first $7,000 of
wages paid.
These taxes are:
FICA tax
Federal
unemployment tax
State
unemployment tax
Payroll tax expense results from three taxes that governmental agencies levy on employers.
F- 18 LO 2 Describe and record employer payroll taxes.
Employer Payroll TaxesEmployer Payroll TaxesEmployer Payroll TaxesEmployer Payroll Taxes
Recording Employer Payroll Taxes
The entire amount of gross pay ($17,210.00) shown in the
payroll register in Illustration F-9 is subject to each of the three
taxes mentioned above. Accordingly, the entry to record the
payroll tax expense associated with the January 14 payroll is:
F- 19
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.
d. FICA taxes.
Question
LO 2 Describe and record employer payroll taxes.
Employer Payroll TaxesEmployer Payroll TaxesEmployer Payroll TaxesEmployer Payroll Taxes
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Companies must report FICA taxes and federal income taxes
withheld no later than one month following the close of each
quarter.
Companies generally file and remit federal unemployment
taxes annually on or before January 31 of the subsequent
year. Companies usually file and pay state unemployment
taxes by the end of the month following each quarter.
Employers must provide each employee with a Wage and Tax
Statement (Form W-2) by January 31.
LO 2 Describe and record employer payroll taxes.
Filing and Remitting Payroll TaxesFiling and Remitting Payroll TaxesFiling and Remitting Payroll TaxesFiling and Remitting Payroll Taxes
F- 21 LO 2
Filing and Remitting Payroll TaxesFiling and Remitting Payroll TaxesFiling and Remitting Payroll TaxesFiling and Remitting Payroll Taxes
Illustration F-12
F- 22
As applied to payroll, the objectives of internal control are to
1. safeguard company assets against unauthorized payments of payrolls, and
2. ensure the accuracy and reliability of the accounting records pertaining to payrolls.
LO 3 Discuss the objectives of internal control for payroll.
Internal Control for PayrollInternal Control for PayrollInternal Control for PayrollInternal Control for Payroll
F- 23
Internal control feature:
Human Resources
department documents and
authorizes employment.
Fraud prevented:
Fictitious employees are not
added to payroll.
LO 3 Discuss the objectives of internal control for payroll.
Internal Control for PayrollInternal Control for PayrollInternal Control for PayrollInternal Control for Payroll
F- 24
Internal control feature:
Supervisors monitor hours
worked through time cards
and time reports.
Fraud prevented:
Employee works appropriate
hours.
LO 3 Discuss the objectives of internal control for payroll.
Internal Control for PayrollInternal Control for PayrollInternal Control for PayrollInternal Control for Payroll
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Internal control feature:
Two (or more) employees
verify payroll amounts;
supervisor approves.
Fraud prevented:
Payroll calculations are
accurate and relevant.
LO 3 Discuss the objectives of internal control for payroll.
Internal Control for PayrollInternal Control for PayrollInternal Control for PayrollInternal Control for Payroll
F- 26
Internal control feature:
Treasurer signs and
distributes prenumbered
checks.
Fraud prevented:
Checks lost through theft;
falsely endorsed used to pay
for hours not worked.
LO 3 Discuss the objectives of internal control for payroll.
Internal Control for PayrollInternal Control for PayrollInternal Control for PayrollInternal Control for Payroll
F- 27
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