1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Today’s Target! Wed., March 2 nd  Students will ledger Subsidiary Accounts and post to General Ledger Agenda Chapter 11 Test for those that haven’t taken it yet Start Chapter 12 – Lecture on Chapter 12 - Today NOTE: Chapters 9, 10 & 11 MUST be completed by Friday March 5 th to receive credit. All units not completed will be a ZERO. NO EXCEPTIONS If not done with Chapter 9 or 10 – then please see me for assignment scheduling Guiding Question:  “Why do we have special journals?”

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning PAYING EMPLOYEES Salary – money paid for employee service Salaries versus wages Pay period – period covered by a salary payment Weekly, Biweekly, Semimonthly, Monthly Payroll – total amount earned by all employees for a pay period Payroll is reduced by state and federal taxes and other deductions, such as health insurance 2 LESSON 12-1

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 3 LESSON 12-1 ANALYZING A PAYROLL TIME CARD page 341 A payroll system must include an accurate record of the time each employee has worked Time cards are a basic source of information Larger companies can afford more expensive systems to record employee arrival and departure times.

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 12-1 4.Add the Hours column. CALCULATING EMPLOYEE HOURS WORKED page 342 1 2 3 4 3.Add Hours Reg and Hours OT columns and enter the totals. 2.Calculate the number of overtime hours and enter the amounts. 1.Calculate the number of regular hours for each day and enter the amounts. * Hobby Shack rounds to the nearest quarter hour

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 12-1 CALCULATING EMPLOYEE TOTAL EARNINGS page 343 3 1 2 4 5 1.Enter the rate for regular time in the Rate column. 2.Calculate the regular earnings. Enter the amount. 3.Enter the rate for overtime. 4.Calculate the overtime earnings. Enter the amount. 5.Add the Amount column to calculate total earnings. Enter the amount of total earnings.

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning CALCULATING EMPLOYEE TOTAL EARNINGS Total earnings – total pay due for a pay period before deductions also known as gross pay or gross earnings 6 LESSON 12-1

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning PAYROLL TAXES Payroll taxes – taxes based on the payroll of a business Businesses are required by law to withhold certain payroll taxes from employee salaries including: Federal income tax State, city, or county income tax (if required) Social Security tax Medicare tax Tax is based on employee total earnings Taxes withheld represent a liability for employer until payment is made to government 7 LESSON 12-1

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE Information used to determine the amount of income tax withheld is identified on Form W-4 Withholding allowance – deduction from total earnings for each person legally supported by a taxpayer (called a dependent) Amount of income tax withheld is based on employee marital status and number of withholding allowances Married employee will have less income tax withheld than a single employee Larger number of withholding allowances claimed results in smaller amount of taxes withheld 8 LESSON 12-1

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 12-2 EMPLOYEE’S WITHHOLDING ALLOWANCE CERTIFICATE 1 23 4 5 page 346 1.Write the employee’s name and address 2.Write the employee’s social security number. 3.Check the appropriate marital status block. 4.Write the total number of withholding allowances claimed. 5.The employee signs and dates the form. See IRS websiteSee IRS website

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning EMPLOYEE’S INCOME TAX WITHHOLDING The amount of federal income tax withheld from each person is determined from withholding tables prepared by the IRS - revised and prepared each year Tables are prepared for various payroll periods See pgs. 347-348 in your book Current IRS withholding tables 10 LESSON 12-1

11. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 12-2 EMPLOYEE’S INCOME TAX WITHHOLDING – MARRIED PERSONS page 348 1 23 1.Select the appropriate table. 2.Locate the employee’s total earnings. 3.Intersection of wages and number of allowances column.

12. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning EMPLOYEE SOCIAL SECURITY AND MEDICARE TAX The Federal Insurance Contributions Act (FICA) provides for a federal tax system Social security tax – federal tax paid for old-age, survivors, and disability insurance Medicare tax – federal tax paid for hospital insurance Paid by BOTH employees and employer – employers are required to withhold the employee’s part Tax base – maximum amount of earnings on which Social Security tax is calculated (Medicare has no tax base) Social Security = 6.2% for both employee and employer with an $118,500 in 2016 Medicare = 1.45% for both employee and employer (no tax base) 12 LESSON 12-1

13. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Aplia Chapter 12-1 – WT/OYO Chapter 12-1 – Application Problem Chapter 12-2 – WT/OYO Chapter 12-2 – Application Problem 13 LESSON 12-1

14. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 12-3 Preparing Payroll Records

15. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning PAYROLL REGISTER Payroll register – business form used to record payroll information Summarizes the payroll for one pay period and shows total earnings, payroll withholdings, and net pay for all employees Prepare a separate payroll register for each semimonthly payroll 15 LESSON 12-3

16. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 16 LESSON 12-3 PAYROLL REGISTER 78910 11 12 page 351 12 3 456 13 8. Health insurance premium deductions 2. Payment date 3. Employee personal data 9. Other employee payroll deductions (B= bond and uw=United Way) 4. Earnings 10. Total deductions 5. Federal income tax withheld 11. Net pay 6. Social security tax withheld 12. Total, prove, and rule (total earnings – total deductions = net pay) 7. Medicare tax withheld 13. Check number 1. Pay period date

17. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning EMPLOYEE EARNINGS RECORDS A business must send a quarterly report to federal and state governments showing employee taxable earnings and taxes withheld from earnings Employee earnings record – business form used to record details affecting payments made to an employee Earnings and deductions for each pay period on one line in the employee earnings record 17 LESSON 12-3

18. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 18 LESSON 12-3 EMPLOYEE EARNINGS RECORDS page 353 7. Total and prove 5.Earnings, deductions, net pay 2.Employee personal data 1 1.Last day of quarter 4.Pay period 3.Beginning accumulated earnings 6. Updated accumulated earnings 4 2 7 6 3 5 Remember: Total earnings (NOT net pay) are added to the previous accumulated earnings amount. Used for tax base.

19. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TAXING FYI 19 LESSON 12-3 The federal income tax withholding tables contain a column for 0 dependents. How can an employee have 0 dependents if the employee is a dependent? Some employees claim fewer dependents than they are allowed (such as 0) to increase the amount of tax withheld. If employee has other taxable income, such as interest and dividends, can use payroll withholding to pay the additional income taxes owed As a result, the employee avoids having a large income tax payment when the tax return is filed

20. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 12-4 Preparing Payroll Checks

21. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 21 LESSON 12-3 PAYROLL BANK ACCOUNT Using a separate checking account for payroll checks provides internal control and helps prevent fraud. If amounts on checks are altered or unauthorized payroll checks are prepared, the amount in the special payroll account would be insufficient to cover all checks So the business would be alerted quickly Any balance in this account will correspond to the sum of outstanding payroll checks

22. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 22 LESSON 12-4 PAYROLL BANK ACCOUNT 1.Prepare the check stub. page 356 2.Prepare the check. 12 Total Net Pay

23. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 12-4 EMPLOYEE’S PAYROLL CHECK page 357 1.Prepare the check stub of each employee’s payroll check from the payroll register. 2.Prepare each employee’s payroll check. 21

24. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ELECTRONIC FUNDS TRANSFER 24 LESSON 12-3 Electronic Funds Transfer (EFT) – computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents Some businesses deposit employee net pay directly to each employee bank account by using EFT Bank’s computer deducts the amount of net pay from the business’s bank account and adds the amount to each employee bank account Payroll must be calculated still, but individual checks are not written and distributed Each employee receives a statement of earnings and deductions similar to the detachable stub from check