1. PAYROLL ACCOUNTING Chapter 11 2013 CPP REVIEW CLASS CHAPTER 11 Carmela Miller, CPP howardcarmmiller@msn.com

2. Payroll Accounting Agenda Understanding Transaction/Flow Chart of Accounts Debit/Credit (Increase vs. Decrease) Type of Accounts Accruals/Reversals T-Accounts Financial Statements Final Exam/Review

3. 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

4. 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.

5. Recording Transactions All of a companys 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 companys financial position at a particular point in time.

6. 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.

7. 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

8. Transaction Flow

9. 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

10. Chart of Normal Account Balances Type of AccountNormal Account Balance AssetDebit LiabilityCredit EquityCredit RevenueCredit ExpenseDebit Income DistributedDebit Contributed CapitalCredit

11. Table 11-2 Any Asset or Expense Account Debit Credit Increases Decreases Any Liability or Revenue Account Debit Credit Decreases Increases

12. Transactions Name JE #_________ Date Date Acct Description DR CR 1/15/2009 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

13. Transactions Cont. NOTICE: – Chronological Recording of daily transactions – Double Entry Accounting – Debits must = Credits – Compound Entry

14. 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 companys 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.

15. Chart of Accounts Asset Accounts Liability Accounts Revenue Accounts Expense Accounts Equity Accounts

16. Type of Accounts Asset Accounts – Anything owned by the company Computers Payroll Software Equipment Furniture Cash in the payroll checking account Petty Cash ASSET ACCOUNTS: DEBIT = INCREASE CREDIT = DECREASE

17. 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

18. Type of Accounts Equity Accounts – The net worth of the company, or the shareholders equity. Retained Earnings Capital Accounts

19. Type of Accounts Revenue Accounts – Income recognized for goods sold and services rendered. Gross Revenue Earned Income Services REVENUE ACCOUNTS: DEBIT = DECREASE CREDIT = INCREASE

20. 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

21. 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)

22. Wards Consulting Trial Balance December 31, 2012 Account TitleDebitCredit 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. Accruals and Reversals Matching Principle – Expenses should always be posted against Revenues they produced. Accruals & Reversals – Record items in the period that they occurred

24. Financial Statement Income Statement Revenue minus Expenses for a period of time. Balance Sheet Assets equals Liabilities plus Equity at a point in time.

25. Balance Sheet Mar 13, 13 ASSETS Current Assets Checking/Savings Chase Bldg Acct7,028.04 Chase Personal-6,003.50 Total Checking/Savings1,024.54 Total Current Assets1,024.54 TOTAL ASSETS1,024.54 LIABILITIES & EQUITY Equity Retained Earnings1,499.85 Net Income-475.31 Total Equity1,024.54 TOTAL LIABILITIES & EQUITY1,024.54

26. Profit and Loss Statement Jan - Dec 12 Ordinary Income/Expense Income Rental Income40,000.21 Total Income40,000.21 Expense Bank Service Charges2.00 Insurance Expense Building Insurance5,626.34 Health Insurance3,480.00 Total Insurance Expense9,106.34 medical Expense186.39 Reconciliation Discrepancies0.00 Repairs and Maintenance14,784.18 Small Tools and Equipment133.35 Taxes Income Taxes641.00 Real Estate Property Taxes9,446.40 Total Taxes10,087.40 Utilities Disposal Service1,376.26 Electric1,374.29 Gas931.36 Phone1,104.72 Water863.58 Total Utilities5,650.21 Total Expense39,949.87 Net Ordinary Income50.34 Other Income/Expense Other Income Bank Interest0.98 Total Other Income0.98 Net Other Income0.98 Net Income 51.32

27. Expenses by Vendor TypeDate Nu m Mem oAccountClrSplitAmountBalance Advanced Disposall Chgo Central Check01/07/2013EFTDisposal ServiceChase Bldg Acct125.41 Total Advanced Disposall Chgo Central125.41 AT & T Check01/04/2013EFTPhoneChase Bldg Acct59.96 Total AT & T59.96 Blue Cross Blue Shield Check01/02/2013EFTHealth InsuranceChase Bldg Acct290.00 Total Blue Cross Blue Shield290.00 TOTAL475.37

28. General Ledger TypeDateNumNameMemoSplitAmountBalance Chase Bldg Acct7,028.04 Total Chase Bldg Acct7,028.04 Chase Personal-6,003.50 Total Chase Personal-6,003.50 Accumulated Depreciation0.00 Total Accumulated Depreciation0.00 Furniture and Equipment0.00 Total Furniture and Equipment0.00 Payroll Liabilities0.00 Total Payroll Liabilities0.00 Tenant Security Deposits Held0.00 Total Tenant Security Deposits Held0.00 Opening Balance Equity0.00 Total Opening Balance Equity0.00 Retained Earnings-1,499.85 Total Retained Earnings-1,499.85 Rental Income0.00 Deposits0.00 Total Deposits0.00 Rental Income - Other0.00 Total Rental Income - Other 0.00 Total Rental Income0.00

29. Test your Knowledge Classify each item that follows as an asset, liability or owners equity a.Cash __________ b.Loan Payable to a bank _________ c.Delivery Equipment _________ d.Account Payable to a creditor __________ e.Office Furniture _____________ f.Owners Financial Interest __________ g.Petty Cash ___________ h.Mortgage Payable to a bank ___________ i.FUTA Taxes Payable ____________

30. Payroll Accounting Review: The Chapter 11, go over what credits and debits, know what are assets, liabilities and owners equity. Review what is a normal balance for your accounts.