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Appendix D 1 Payroll Accounting Financial Accounting, Sixth Edition Appendix D.

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Presentation on theme: "Appendix D 1 Payroll Accounting Financial Accounting, Sixth Edition Appendix D."— Presentation transcript:

1 Appendix D 1 Payroll Accounting Financial Accounting, Sixth Edition Appendix D

2 Appendix D Discuss the objectives of internal control for payroll Compute and record the payroll for a pay period Describe and record employer payroll taxes. Study Objectives

3 Appendix D 3 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 Accounting Determining the payroll involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay.

4 Appendix D 4 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 Payroll

5 Appendix D 5 Internal control feature: Human Resources department documents and authorizes employment. Fraud prevented: Fictitious employees being added to payroll. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

6 Appendix D 6 Internal control feature: Supervisors monitor hours worked through time cards and time reports. Fraud prevented: Employee paid for hours not worked. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

7 Appendix D 7 Internal control feature: Two (or more) employees verify payroll amounts; supervisor approves. Fraud prevented: Payroll calculation errors and inappropriate amounts being paid to an employee. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

8 Appendix D 8 Internal control feature: Treasurer signs and distributes prenumbered checks. Fraud prevented: Checks lost through theft; falsely endorsed used to pay for hours not worked. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

9 Appendix D 9 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 Payroll Illustration D-3

10 Appendix D 10 Mandatory: FICA tax Federal income tax State income tax Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll Voluntary: Charity Retirement Union dues Health and life insurance Pension plans

11 Appendix D 11 Mandatory: FICA tax Federal income tax State income tax Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll Social Security taxes  Supplemental retirement, employment disability, and medical benefits.  In 2007, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $97,500 of gross earnings for each employee.

12 Appendix D 12 Mandatory: FICA tax Federal income tax State income tax Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll  Employers are required to withhold income taxes from employees pay.  Withholding amounts are based on gross wages and the number of allowances claimed.

13 Appendix D 13 Employee must complete an Employee’s Withholding Allowance Certificate (Form W-4). SO 2 Compute and record the payroll for a pay period. Determining the Payroll Illustration D-5

14 Appendix D 14 Mandatory: FICA tax Federal income tax State income tax Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll  Most states (and some cities) require employers to withhold income taxes from employees’ earnings.

15 Appendix D 15 Gross earnings minus payroll deductions. Net Pay SO 2 Compute and record the payroll for a pay period. Determining the Payroll Illustration D-7

16 Appendix D 16 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 SO 2 Compute and record the payroll for a pay period. Recording the Payroll Illustration D-8 Employee earnings record

17 Appendix 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 SO 2 Compute and record the payroll for a pay period. Recording the Payroll Illustration D-9 Payroll register

18 Appendix D 18 Exercise: Joyce Kieffer’s regular hourly wage rate is $15, and she receives a wage of times the regular hourly rate for work in excess of 40 hours. During a March weekly pay period Joyce worked 42 hours. Her gross earnings prior to the current week were $6,000. Joyce is married and claims three withholding allowances. Her only voluntary deduction is for group hospitalization insurance at $25 per week. Instructions: Record Joyce’s pay, assuming she is an office computer operator. Recognizing Payroll Expenses and Liabilities SO 2 Compute and record the payroll for a pay period. Recording the Payroll

19 Appendix D 19 Exercise: Record Joyce’s pay, assuming she is an office computer operator. SO 2 Compute and record the payroll for a pay period. Recording the Payroll Wages Expense Federal Income Taxes Payable55.00 FICA Taxes Payable51.60 ** $645 x 8% = $51.60**** $645 x 2% = $12.90 * (40 x $15) + (2 x $22.50) = $645 State Income Taxes Payable12.90 Insurance Payable25.00 Wages Payable * ** *** Table, next slide *** ****

20 Appendix D 20 Exercise: Joyce is married and claims three withholding allowances. SO 2 Compute and record the payroll for a pay period. Recording the Payroll Federal Income Tax Withholding Illustration D-6

21 Appendix D 21 Using the facts from the previous Exercise. Recording Payment of the Payroll SO 2 Compute and record the payroll for a pay period. Recording the Payroll Wages Payable Cash500.50

22 Appendix D 22 Payroll tax expense results from three taxes that governmental agencies levy on employers. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes These taxes are: FICA tax Federal unemployment tax State unemployment tax  Same rate and maximum earnings as the employee’s.  In 2007, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $97,500 of gross earnings for each employee.

23 Appendix D 23 Payroll tax expense results from three taxes that governmental agencies levy on employers. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes These taxes are: FICA Federal unemployment tax State unemployment tax  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%.

24 Appendix D 24 Payroll tax expense results from three taxes that governmental agencies levy on employers. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes These taxes are: FICA Federal unemployment tax State unemployment tax  SUTA basic rate is usually 5.4% on the first $7,000 of wages paid.

25 Appendix D 25 Exercise: According to a payroll register summary of Ruiz Company, the amount of employees’ gross pay in December was $850,000, of which $90,000 was not subject to FICA tax and $750,000 was not subject to state and federal unemployment taxes. Instructions: Prepare the journal entry to record December payroll tax expense. Use the following rates: FICA 8%, state unemployment 5.4%, federal unemployment 0.8%. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes

26 Appendix D 26 Exercise: Prepare the journal entry to record December payroll tax expense. Use the following rates: FICA 8%, state unemployment 5.4%, federal unemployment 0.8%. Payroll Tax Expense67,000 State Unemployment taxes Payable5,400 FICA Taxes Payable60,800 ** $100,000 x 5.4% = $5,400 * $760,000 x 8% = $60,800 Federal Unemployment Taxes Payable 800 * *** $100,000 x.8% = $5,400 ** *** SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes

27 Appendix D 27 Employer payroll taxes do not include: a.Federal unemployment taxes. b.State unemployment taxes. c.Federal income taxes. d.FICA taxes. Question SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes

28 Appendix D 28 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. SO 3 Describe and record employer payroll taxes. Filing and Remitting Payroll Taxes

29 Appendix D 29 “Copyright © 2008 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.” CopyrightCopyright


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