1. I-1 Prepared by Coby Harmon University of California, Santa Barbara Westmont College W ILEY IFRS EDITION

2. I-2 APPENDIX PREVIEW Financial Accounting IFRS 3rd Edition Weygandt ● Kimmel ● Kieso While the mechanics of payroll accounting are the same around the world, the particular accounts used are country- specific. Each country has different laws, different health and social programs, and different taxes related to payroll. The examples in this appendix illustrate payroll accounting applied in the United States.

3. I-3 I LEARNING OBJECTIVES 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. APPENDIX Payroll Accounting

4. I-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). Involves computing three amounts: (1) gross earnings, (2) payroll deductions, and (3) net pay. Determining the Payroll LO 1 Accounting for Payroll Learning Objective 1 Compute and record the payroll for a pay period.

5. I-5 Total compensation earned by an employee (wages or salaries, plus any bonuses and commissions). GROSS EARNINGS Determining the Payroll LO 1 Illustration I-1 Computation of total wages

6. I-6 Mandatory:  FICA tax  Federal income tax  State income tax PAYROLL DEDUCTIONS Voluntary:  Charity  Insurance  Union dues  Pension plans Determining the Payroll LO 1

7. I-7 Mandatory:  FICA tax  Federal income tax  State income tax Social Security and Medicare tax Supplemental retirement, employment disability, and medical benefits. Determining the Payroll PAYROLL DEDUCTIONS LO 1 Illustration I-3 FICA tax rate and tax base

8. I-8  Employers are required to withhold income taxes from employees’ pay.  Withholding amounts are based on gross wages and the number of allowances claimed. Determining the Payroll Mandatory:  FICA tax  Federal income tax  State income tax PAYROLL DEDUCTIONS LO 1

9. I-9 Most states (and some cities) require employers to withhold income taxes from employees’ earnings. Determining the Payroll Mandatory:  FICA tax  Federal income tax  State income tax PAYROLL DEDUCTIONS LO 1

10. I-10 Gross earnings minus payroll deductions. NET PAY Determining the Payroll LO 1 Illustration I-6 Computation of net pay

11. I-11 LO 1 Illustration I-7 Employee earnings record Recording the Payroll

12. I-12 LO 1 Illustration I-8 Payroll register Recording the Payroll

13. I-13 Illustration: Prepare the entry Academy Company would make to record the payroll for the week ending January 14. RECOGNIZING PAYROLL EXPENSES AND LIABILITIES Salaries and Wages Expense17,210.00 FICA Taxes Payable 1,316.57 Federal Income Taxes Payable 3,490.00 State Income Taxes Payable 344.20 United Fund Contributions Payable 421.50 Union Dues Payable 115.00 Salaries and Wages Payable 11,522.73 Recording the Payroll LO 1

14. I-14 Illustration: Prepare the entry Academy Company would make to record the payment of the payroll. RECORDING PAYMENT OF THE PAYROLL Recording the Payroll LO 1 Salaries and Wages Payable11,522.73 Cash11,522.73

15. I-15 Illustration I-9 Paycheck and statement of earnings RECORDING PAYMENT OF THE PAYROLL LO 1

16. I-16 These taxes are:  FICA taxes  Federal unemployment tax  State unemployment tax Same rate and maximum earnings as the employee’s. LO 2 Payroll tax expense results from three taxes that governmental agencies levy on employers. Employer Payroll Taxes Learning Objective 2 Describe and record employer payroll taxes.

17. I-17  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%. Employer Payroll Taxes These taxes are:  FICA tax  Federal unemployment tax  State unemployment tax LO 2 Payroll tax expense results from three taxes that governmental agencies levy on employers.

18. I-18 SUTA basic rate is usually 5.4% on the first $7,000 of wages paid. Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers. These taxes are:  FICA tax  Federal unemployment tax  State unemployment tax LO 2

19. I-19 Illustration: Academy records the payroll tax expense associated with the January 14 payroll with the following entry. Use the following rates: FICA 8%, state unemployment 5.4%, federal unemployment 0.8%. Payroll Tax Expense2,383.59 State Unemployment Tax Payable929.34 FICA Tax Payable1,316.57 *** $17,210.00 x 5.4% = $929.34 * $ 17,210.00 x 7.65% = $1,316.57 Federal Unemployment Tax Payable 137.68 * ** $17,210 x.8% = $137.68 ** *** Recording Employer Payroll Taxes LO 2

20. I-20 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 Taxes LO 2

21. I-21 APPENDIX Filing and Remitting Payroll Taxes Illustration I-11 LO 2

22. I-22 As applied to payrolls, 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. LO 3 Internal Control for Payroll Learning Objective 3 Discuss the objectives of internal control for payroll.

23. I-23 APPENDIX Internal Control for Payroll LO 3 Illustration I-12 Internal control for payroll

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