slide d 1. slide d 2 appendix d payroll accounting financial accounting, seventh edition

Slide D 1

Slide D 2

Appendix D

Payroll Accounting

Financial Accounting, Seventh Edition

Slide D 3

1. Discuss the objectives of internal control for

payroll.

2. Compute and record the payroll for a pay

period.

3. Describe and record employer payroll taxes.

Study ObjectivesStudy ObjectivesStudy ObjectivesStudy Objectives

Slide D 4

The term “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).

Payroll AccountingPayroll AccountingPayroll AccountingPayroll Accounting

Determining the payroll involves computing three amounts:

(1) gross earnings,

(2) payroll deductions, and

(3) net pay.

Slide D 5

As applied to payroll, the objectives of internal

control are:

1. to safeguard company assets against

unauthorized payments of payrolls, and

2. to ensure the accuracy and reliability of the

accounting records pertaining to payrolls.

SO 1 Discuss the objectives of internal control for payroll.

Internal Control for PayrollInternal Control for PayrollInternal Control for PayrollInternal Control for Payroll

Slide D 6

Fraud prevented:

Fictitious employees

being added to

payroll.



Slide D 7

Fraud prevented:

Employee paid for

hours not worked.



Slide D 8

Fraud prevented:

Payroll calculation

errors and

inappropriate

amounts being paid

to an employee.



Slide D 9

Fraud prevented:

Checks lost through

theft; falsely

endorsed used to

pay for hours not

worked.



Slide D 10

Total compensation earned by an employee (wages or salaries, plus any bonuses and commissions).

Gross Earnings

SO 2 Compute and record the payroll for a pay period.

Determining the PayrollDetermining the PayrollDetermining the PayrollDetermining the Payroll

Illustration D-3

Slide D 11

Mandatory:

FICA taxes

Federal income tax

State income tax

Payroll Deductions



Voluntary:

Charity

Retirement

Union dues

Health and life insurance

Pension plans

Slide D 12

Mandatory:

FICA taxes

Federal income tax

State income tax

Payroll Deductions



Social Security taxes

Supplemental retirement, employment disability, and medical benefits.

In 2009, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $106,800 of gross earnings for each employee.

Slide D 13

Payroll Deductions



Employers are required to withhold income taxes from employees pay.

Withholding amounts are based on gross wages and the number of allowances claimed.

Mandatory:

FICA taxes

Federal income tax

State income tax

Slide D 14

Employee must complete an Employee’s Withholding Allowance Certificate (Form W-4).



Illustration D-5

Slide D 15



Most states (and some cities) require employers to withhold income taxes from employees’ earnings.

Payroll Deductions

Mandatory:

FICA taxes

Federal income tax

State income tax

Slide D 16

Gross earnings minus payroll deductions.

Net Pay



Illustration D-7

Slide D 17

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


Recording the PayrollRecording the PayrollRecording the PayrollRecording the Payroll

Illustration D-8 Employee earnings record

Slide D 18

Recognizing Payroll Expenses and Liabilities



Illustration D-9

Slide D 19

Illustration: From the payroll register in Illustration D-9, Academy makes a journal entry to record the payroll.



Office Salaries Expense 5,200.00

Wages Expense 12,010.00

FICA Taxes Payable

1,376.80

Federal Income Taxes Payable

3,490.00

State Income Taxes Payable

344.20

United Way Payable

421.50

Union Dues Payable

115.00

Salaries and Wages Payable

11,462.50

Slide D 20

Using the facts from the previous Illustration.

Recording Payment of the Payroll



Salaries and wages payable11,462.50

Cash11,462.50

Slide D 21

Payroll tax expense results from three taxes that governmental agencies levy on employers.

SO 3 Describe and record employer payroll taxes.

Employer Payroll TaxesEmployer Payroll TaxesEmployer Payroll TaxesEmployer Payroll Taxes

These taxes are:

FICA taxes

Federal unemployment tax

State unemployment tax

Same rate and maximum earnings as the employee’s.

In 2009, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $106,800 of gross earnings for each employee.

Slide D 22




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 taxes



Slide D 23




SUTA basic rate is usually 5.4% on the first $7,000 of wages paid.

These taxes are:

FICA taxes



Slide D 24

Illustration: The entire amount of gross pay ($17,210.00) shown in the payroll register in Illustration D-9 is subject to each of the three taxes mentioned above. Accordingly, Academy records the payroll tax expense.



Recording Employer Payroll Taxes

Payroll Tax Expense 2,443.82

FICA Taxes Payable

1,376.80

Federal Unemployment Taxes Payable

137.68

State Unemployment Taxes Payable

929.34

Slide D 25

Employer payroll taxes do not include:

a. Federal unemployment taxes.

b. State unemployment taxes.

c. Federal income taxes.

d. FICA taxes.

QuestionQuestion



Slide D 26

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.


Filing and Remitting Payroll TaxesFiling and Remitting Payroll TaxesFiling and Remitting Payroll TaxesFiling and Remitting Payroll Taxes

Slide D 27

“Copyright © 2010 John Wiley & Sons, Inc. All rights

reserved. Reproduction or translation of this work beyond

that permitted in Section 117 of the 1976 United States

Copyright Act without the express written permission of

the copyright owner is unlawful. Request for further

information should be addressed to the Permissions

Department, John Wiley & Sons, Inc. The purchaser may

make back-up copies for his/her own use only and not for

distribution or resale. The Publisher assumes no

responsibility for errors, omissions, or damages, caused by

the use of these programs or from the use of the

information contained herein.”

CopyrightCopyrightCopyrightCopyright

slide d 1. slide d 2 appendix d payroll accounting financial accounting, seventh edition

Documents