1. Learning Objectives © 2015 Cengage Learning. All Rights Reserved. LO4Journalize the payment of a payroll. LO5Journalize the payment of payroll taxes. LESSON3-2 Recording a Payroll and Payroll Taxes

2. © 2015 Cengage Learning. All Rights Reserved. Payroll Bank Account SLIDE 2 LO4 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved. Companies typically use a special payroll checking account and special payroll checks to pay employees. After the payroll register is completed, a check is written for the net amount of pay and deposited in a special payroll checking account against which payroll checks are written for each employee’s net pay. After all employees cash their checks, the payroll bank account has a zero balance and, therefore, no special account is needed in the general ledger.

3. © 2015 Cengage Learning. All Rights Reserved. Automatic Check Deposit SLIDE 3 LO4 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved. Depositing payroll checks directly to an employee’s checking or savings account is called automatic check deposit. A computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents is called electronic funds transfer (EFT). The use of automatic check deposit or electronic funds transfer for payroll does not change the accounting procedures for recording payroll.

4. © 2015 Cengage Learning. All Rights Reserved. Journalizing Payment of a Payroll July 16. Paid cash for biweekly payroll, $9,029.21 (total payroll: grills, $2,852.84; furniture, $4,953.92; administrative, $4,464.00; less deductions: employee income tax—federal, $952.00; employee income tax—state, $490.83; social security tax, $760.79; Medicare tax, $177.93; medical insurance, $525.00; retirement plan, $335.00). Check No. 820. LO4 Lesson 3-2 1 1 Date 3 3 Check Number Salary Expenses Debited 2 2 Total Earnings 4 4 Accounts Credited 6 6 Payroll Deductions 7 7 Net Pay (Amount Paid to Employees) 5 5 © 2015 Cengage Learning. All Rights Reserved.

5. Journalizing Payment of a Payroll SLIDE 5 LO4 Lesson 3-2 July 16. Paid cash for biweekly payroll, $9,029.21 (total payroll: grills, $2,852.84; furniture, $4,953.92; administrative, $4,464.00; less deductions: employee income tax—federal, $952.00; employee income tax—state, $490.83; social security tax, $760.79; Medicare tax, $177.93; medical insurance, $525.00; retirement plan, $335.00). Check No. 820. © 2015 Cengage Learning. All Rights Reserved. The payment of the payroll is journalized in the cash payments journal and the source document for journalizing the payroll payment is the check written for net payroll.

6. © 2015 Cengage Learning. All Rights Reserved. Employer Payroll Taxes SLIDE 6 Most employers have four separate payroll taxes: 1. Employer social security tax 2. Employer Medicare tax 3. Federal unemployment tax 4. State unemployment tax LO5 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved.

7. Employer Payroll Taxes ●Employer social security and Medicare taxes ●Federal unemployment tax ●A federal tax paid by employers to administer the unemployment program is called federal unemployment tax, commonly referred to as FUTA. ●State unemployment tax ●A state tax paid by employers that is used to pay benefits to unemployed workers is called state unemployment tax, commonly referred to as SUTA. LO5 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved.

8. Calculating Employer Payroll Taxes SLIDE 8 LO5 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved.

9. Journalizing Employer Payroll Taxes July 16. Recorded employer payroll taxes for the biweekly pay period ended July 16. Taxes owed are social security tax, $760.79; Medicare tax, $177.93; federal unemployment tax, $16.94; state unemployment tax, $152.44; total payroll taxes by department are grills, $294.75; furniture, $471.85; and administrative, $341.50. Memorandum No. 69. Lesson 3-2 LO5 © 2015 Cengage Learning. All Rights Reserved.

10. Journalizing Employer Payroll Taxes LO5 Lesson 3-2 1 1 Date 3 3 Memorandum NumberAccounts Debited 2 2 Amounts Debited 4 4 Accounts Credited 5 5 Amounts Credited 6 6 © 2015 Cengage Learning. All Rights Reserved.

11. Payment of Federal Income Tax, Social Security Tax, and Medicare Tax Liabilities SLIDE 11 LO5 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved. Employers must pay to federal, state, and local governments all payroll taxes withheld from employee earnings as well as the employer payroll taxes. Federal and state laws govern the frequency of payments, which means that the greater the amount owed, the greater the frequency of payment. A monthly schedule depositor must deposit the taxes by the 15th day of the next month.

12. © 2015 Cengage Learning. All Rights Reserved. Journalizing Payment of Federal Income Tax, Social Security Tax, and Medicare Tax Liabilities SLIDE 12 LO5 Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved. Date Liability Accounts Memorandum Number Liability Amounts Payment Amount August 15. Made a deposit using the EFTPS for payroll tax liabilities: employee federal income tax, $2,047.00, employees’ and employer’s social security tax, $2,924.86, and Medicare tax, $684.04; total, $5,655.90. Memorandum No. 76.

13. © 2015 Cengage Learning. All Rights Reserved. Journalizing Payment of Federal and State Unemployment Tax Liability Lesson 3-2 Date 1 1 July 29. Paid cash for federal unemployment tax liability for quarter ended June 30, $501.75. Memorandum No. 79. July 29. Paid cash for state unemployment tax liability for quarter ended June 30, $735.75. Check No. 849. LO5 Liabilities 2 2 Document Number 3 3 Liability Amounts 4 4 Payment Amounts 5 5 © 2015 Cengage Learning. All Rights Reserved.

14. Lesson 3-2 Audit Your Understanding 1.When a payroll is journalized, which account is credited for the total net amount paid to all employees? SLIDE 14 ANSWER Cash. Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved.

15. Lesson 3-2 Audit Your Understanding 2.What four separate payroll taxes do most employers have to pay? SLIDE 15 ANSWER 2. a. Employer social security tax. b. Employer Medicare tax. c. Federal unemployment tax. d. State unemployment tax. Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved.

16. Lesson 3-2 Audit Your Understanding 3.How are most employers required to deposit federal payroll taxes? SLIDE 16 ANSWER Using the Electronic Federal Tax Payment System (EFTPS). Lesson 3-2 © 2015 Cengage Learning. All Rights Reserved.