1. Developed by Lisa Swallow, CPA CMA MS
Payroll Accounting 2013
Bernard J. Bieg and Judith A. Toland
CHAPTER 6
ANALYZING & JOURNALIZING PAYROLL TRANSACTIONS
Developed by Lisa Swallow, CPA CMA MS

2. Learning Objectives Record payrolls in appropriate records
Understand various deductions taken from employees’ gross pay
Journalize entries to record payroll and payroll taxes
Post to general ledger
Explain recording of payroll tax deposits
Understand need for end-of-period adjustments

3. Accounting for Payroll Transactions
Payroll requires entering data (in order) in the following places
Payroll Register
Employee Earnings Records
General Journal
Journalize gross wages and withholdings
Journalize payroll taxes and workers’ compensation
Journalize period-end accruals
Post to General Ledger
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4. Payroll Register First – record info in payroll register
Lists employees in rows and shows following information for each
Gross wages
Taxes withheld and other deductions
Net pay
Payroll register shows (in columns)
Total of gross wages, each deduction and net
When completed, should “foot” or prove payroll register by ensuring that columns and rows all total to bottom right hand number
*Use payroll register to journalize*
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5. Employees’ Earnings Records
Second – transfer info to employees’ earnings records
Used to track cumulative totals (wages and taxes)
Enter row of data for each pay period
Important because different wage caps for FUTA, SUTA and OASDI taxes
Need to track cumulative totals in order to issue W-2s and do quarterly SUTA reports
Used to prepare payroll analyses - various internal and external reports
Might be used to settle employee grievances
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6. Recording Gross Payroll & Withholdings
Third - enter information into accounting system
Gross payroll is debited
Each withholding tax is credited to a liability
All other payroll deductions are liabilities as well
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7. Problem
6 – 15A

8. Recording Gross Payroll & Withholdings
Any deduction that the employer makes from employee’s paycheck goes into a liability account (because they owe it to someone) such as:
Group life insurance premiums
Health insurance premiums
Purchase of government savings bonds
Union dues
Wage garnishments
Pension and retirement contributions
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9. Garnishments
A creditor can, through the courts, seek repayment of his/her money by garnishment
Employer is required to comply with garnishment order
Employer must withhold funds from employee’s paycheck and submit it to appropriate authorities
Garnishments limited based upon Consumer Credit Protection Act (CCPA) - other than for federal tax levies
Priority for attachments are: (1) bankruptcy* (2) federal tax levy/child support (3) creditor, student loan, federal administrative wage garnishments
*Chapter13 bankruptcy orders have
highest priority over all other claims
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10. Child Support
Family Support Act requires immediate withholding for child-support payments
Employer can withhold a state mandated fee for administration
Some states now require electronic submission of garnished child support payments
Maximum amount that can be withheld from a person’s weekly disposable earnings varies according to different support orders, but can vary between 50-65% of disposable earnings depending on other obligations and number of weeks in arrears
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11. Federal Tax Levy
Take second priority after wages withheld for child support (if received prior to tax levy)
These levies are suspended if debtor declares bankruptcy
Amount of taxpayer’s standard deduction is only amount that is exempt from a federal tax levy
$5,950 for single and $11,900 for married
IRS publishes tables that can be used to figure amount exempt from tax levies
Employer required to withhold until Form 668-D (Release of Levy/Release of Property from Levy) received
Only amounts exempt are standard deduction AND personal exemption so take personal exemption ($3,800) + standard (i.e. $5,950)…..see example page 6-10.
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12. Pension & Retirement Contributions
Pension plans that involve employee contributions result in liability for the employer
Recorded in payroll entry
Pension Protection Act of 2006 gives company ability to automatically enroll employees in company’s plan and deduct contributions from pay
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13. Problem
6 – 1A , 6 – 2 A

14. Methods of Paying Wages & Salaries
Check
Sometimes separate payroll account maintained to make bank reconciliation process easier
Electronic payment methods
EFTS (electronic funds transfer system)
Electronic records created showing bank, account # and net pay
Pay cards allow employer to deposit payroll into prepaid card
Card utilized like debit or credit card
Many employees who do not have bank accounts use these
Electronic paystubs alleviate need for paper paystubs
Final pay
Many states set time limit between termination and final wage pay out (depends upon whether worker left voluntarily)
CA and MI require immediate payment if employee is fired
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15. Journal Entries to Record Payroll
Journal Entry #1 - Record gross wages, withholdings and net pay
Journal Entry #2 - Record employer’s payroll tax expense
These two journal entries are always the same
in format. You must make both of them every time
you issue any paycheck (even if cutting a check
for one day’s wages, for example).
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16. Journal Entry #1 Journal entry #1 Debit Wage Expense for gross payroll
Credit each withholding account - they are all liabilities
Credit cash (or wages payable) for net payroll
Journal entry #1
Wage Expense ,845.00
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
Employees FIT Payable
SIT Payable
Group Insurance Payments W/H
Cash ,325.76
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17. Journal Entry #2 Journal entry #2
Debit Payroll Tax Expense for total of all payroll taxes that employer pays
Credit each account - they are all liabilities
Calculate all employer taxes utilizing varying wage bases and percentages
Journal entry #2
Payroll Tax Expense
FUTA Taxes Payable
SUTA Taxes Payable
FICA Taxes Payable - OASDI
FICA Taxes Payable - HI
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18. Problem
6 – 5 A, 6 – 7 A, 6 – 8 A

19. Recording Deposit of Payroll Taxes
Look in general ledger for amounts due
Deposit 941 taxes
Deposit SIT
Deposit SUTA
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20. Workers’ Compensation Insurance
Workers’ compensation is an expense for the employer, who is required to purchase insurance to protect employees against work related injuries/disabilities
Laws differ by state
Premiums often calculated based on employment classification – stated in terms of $100 per payroll
Pay premiums in advance based on projected wages
Then, at year-end, report actual wages and pay additional premium or may receive credit towards next year
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21. Journal Entry for Workers’ Compensation
Debit Work Comp. Insurance Expense for premium paid
Credit Cash (if paying) or Insurance Payable (if accruing)
Journal entry
Workers’ Comp. Insurance Expense 99.67
Cash or Workers’ Comp. Insurance Payable 99.67
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22. Problem
6 – 10A

23. Journalize Period-End Accruals
Accrued wages should be recorded for wages earned by workers, but not yet paid
Journal entry
Wage Expense ,589.96
Wages Payable 1,589.96
Accrued vacation pay should be recorded for amount of vacation pay owed employees - many employers now merging sick time and vacation time
Vacation Benefits Expense
Vacation Benefits Payable
Note: Not necessary to accrue payroll tax expense at year-end
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24. Problem
6 – 16A