Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 11-1

Unit 11 Accounting for Payroll McGraw-Hill/Irwin Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11-3 Accounting Records for Payroll Chart of accounts: –is a listing of all the general ledger accounts used by a business –serves as a guide for the recording of transactions. –represent assets, liabilities, and expense items. Assets: –are things of value owned by a business: –cash, bank accounts, office furniture, buildings, delivery vans, furniture, merchandise on hand. Liabilities are debts or loans, Expenses are the costs of operating the business Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11-4 Accounting Records for Payroll Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11-5 Accounting Records for Payroll Most accounting systems are built around two basic types of records: –Journals: is a (day-by-day) listing of transactions

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Accounting Records for Payroll Ledgers: ledger is a group of accounts each account shows everything-that happened over a period of time

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Assets Liabilities Expenses Amounts that are owed Things of value owned by a business Costs of operating the business Accounting Records for Payroll Double entry accounting system: at least two accounts are affected by each transaction. To ensure that the accounting records are kept up-to-date, the journal entries and posting to the ledger are made as soon as possible after the transactions occur.

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Understanding the Ledger Accounts Salaries Wages and Expenses: Payroll causes an increase in the operating expenses of a business. the salaries and wages expense account must be debited for the total gross earnings of the employees.

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Understanding the Ledger Accounts Salaries and Wages Payable: –are a liability of the company. is increased by the amount of net pay earned by the employees.

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Understanding the Ledger Accounts Deductions: difference between Salaries and Wages Expense account and Salaries and Wages Payable deductions will increase the liabilities Each payable account Credit each account for amount of tax withheld

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Understanding the Ledger Accounts Deductions: –Employee Federal Income Taxes Payable –State Disability Insurance Taxes Payable –Social Security Taxes Payable –Medicare Taxes Payable –Employee State Income Taxes Payable –IRA Contributions Payable –Savings Bonds Payable

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Payroll Journal Entry The journal entry to record payroll for week ending January 17, 2005 is:

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Payroll Payment Journal Entry Cash Account Credit for amount equal to net pay Wages & Salaries Payable Debit for amount of net pay Disbursement (payment) journal entry: –On Payday: liability account, (Salaries and Wages Payable) must be debited Cash account must be credited for the net pay amount

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Payroll Payment Journal Entry

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Payroll Taxes Expense Debit for total amount of employers payroll taxes. Each Liability Account Credit each account for the individual tax amounts. Recording the Employers Payroll Taxes Employers payroll taxes: –Employers Social Security Contribution –Employers Medicare Contribution, –Federal ( FUTA) and State (SUTA) unemployment taxes. These items cause: –an increase in operating expenses –and an increase in liabilities until the sums are remitted to the correct government agencies.

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Recording the Employers Payroll Taxes

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Cash Each Liability Account Credit for amount being paid. Debit for amount being deposited to government agencies. Payment/deposit of the payroll taxes: – each liability account must be debited – cash credited for the amount of tax being deposited to the correct government agency. Depositing the Taxes Withheld

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Depositing the Taxes Withheld

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Unit Summary

Copyright © 2006 The McGraw-Hill Companies, Inc. All rights reserved Questions?