Chapter 14 – Manual Payroll System Learning Outcome This chapter shows how to prepare a manual payroll and record the details into accounting records. This will facilitate the understanding of a computer system equivalent. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

KEY TERMS Awards Deductions Employee Instalment Activity Statements Enterprise bargaining Pay slips Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

KEY TERMS PAYG tax system Salaries Suspense accounts Time sheets or time cards Wages Withholding tax Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

DEFINITIONS Awards are terms and conditions of employment for particular industries. Deductions are amounts withheld from employees’ pay as per legislation or employee request. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

DEFINITIONS cont… Enterprise bargaining results in a workplace agreement between employer and employee. Payslips document wage payments to show tax, amounts deducted and net payment to employee. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

DEFINITIONS cont… PAYG tax system is a legislative requirement that tax be withheld from employees’ pay and paid to ATO on a regular basis. Salaries are payments to employees on an annual salary. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

DEFINITIONS cont… Suspense accounts contain amounts held by the business on behalf of the employee. Wages are paid to employees for work under an award or casual work. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYG SYSTEM Employer deducts income tax from employees’ wages. Employer remits tax collected to ATO. Employer reconciles PAYG for ATO at year end (30 June). Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYG SYSTEM cont... Employees prepare payment summaries, with an employee copy and a copy for the ATO. Taxation deductions must comply with the latest Income Tax Instalment Schedule. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYG SYSTEM cont... Income Tax Instalment Schedules are issued by the ATO to assist in calculation of tax deducted. Most computerised payroll packages automatically calculate PAYG. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

SIX MAIN FUNCTIONS OF PAYROLL PROCEDURE Engaging staff and keeping personnel records. Recording time worked by employees. Preparing payroll. Disbursing payroll. Accounting for salaries and wages. Remittance of PAYG, superannuation and other withholdings. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYROLL INTERNAL CONTROLS Adequate internal controls required because: payroll is a large business expense payroll information is confidential payroll fraud is very common legislative requirements must be met. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYROLL INTERNAL CONTROLS cont… The most usual control is to allocate the payroll procedures to different departments or staff members within the organisation. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

SEGREGATION OF PAYROLL DUTIES To provide security within the payroll system different staff or departments should be allocated the following jobs: updating payroll database preparing time sheets preparing payroll authorising payment. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

SEGREGATION OF PAYROLL DUTIES cont… Helps reduce the incident of fraud and error; for example: cheques drawn for incorrect amount fictitious employees overstatement of pay rates disappearance of unclaimed wages. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

OTHER INTERNAL CONTROLS FOR PAYROLL Proper employee records Employee history, payroll records, entitlement records, time sheets Reconciliation of payroll Individual pays to total payroll Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

OTHER INTERNAL CONTROLS FOR PAYROLL cont… Proper authorisation E.g. payroll or cheques authorised by signature of two officers Employee to sign for pay (if appropriate) Security Unclaimed pay locked in safe place Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

OTHER INTERNAL CONTROLS FOR PAYROLL cont… Proper accounting records Correct classification in journals and ledgers Automated payroll systems Ensure operation of internal controls Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYROLL PROCEDURES Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

ACCOUNTING FOR PAYROLL The recorded expense is the gross pay. The difference between the gross pay and net pay is deductions (both mandatory and elective). Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

ACCOUNTING FOR PAYROLL cont… Mandatory deductions may be: PAYG Tax Child Support Agency HECS repayments. Deductions are held in ‘suspense’ or ‘holding’ (liability) accounts until paid out (e.g. to superannuation fund). Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

ACCOUNTING FOR PAYROLL cont... Net pay is credited to Payroll clearing account. Payment of wages clears the Payroll clearing account. Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson

PAYROLL JOURNAL ENTRIES Copyright  2006 McGraw-Hill Australia Pty Ltd PPTs t/a Introductory Accounting 2r, by David Willis By Kaye Watson