2. Accounting for Payroll, Payroll Taxes and Journal Entries

3. Objectives Calculate gross payroll using multiple methods
List and compute withholdings
Compute net pay
Prepare payroll register
Explain distribution methods
Record payroll transactions in the general journal
Describe employer’s payroll taxes
Record the payment of tax liabilities in the general journal
Complete payroll tax records

4. Using a Payroll System pay period
The amount of time over which an employee is paid.
Most Pay Periods Are Either:
Weekly
Biweekly
Semimonthly
Monthly
payroll
A list of the employees and the payments due to each employee for a specific pay period.

5. Pay Categories gross earnings
The total amount of money an employee earns in a pay period; also called gross pay.
Categories that determine Gross Earnings
Salary
Hourly Wage
Commission
Piece Rate
Salary plus Commission or Bonus
salary
A fixed amount of money paid to an employee for each pay period.
wage
An amount of money paid to an employee at a specified rate per hour worked.
piece rate
A rate of pay based on the number of items produced.
commission
An amount paid to an employee based on a percentage of the employee’s sales.

6. Overtime!
The overtime rate was set by the Fair Labor Standards Act of 1938.
Overtime Rate
Pay rate employers are required to pay certain employees covered by state and federal laws; the Fair Labor Standards Act of 1938 sets the rate at 1.5 times the regular hourly rate after 40 hours per week.

7. Deductions
Federal Income Tax
Social Security Tax
City and State Income Tax
deduction
An amount that is subtracted from an employee’s gross earnings.

8. Withholding Allowances
An allowance an individual claims on a Form W-4; it is used to calculate the amount of income tax withheld from an employee’s paycheck.
The amount withheld depends on:
Marital Status (as found on W-4)
Number of Allowances (as found on W-4)
The employees gross earnings

9. The W-4

10. Payroll Liabilities and Tax Records
Employers are legally required to make tax deposits on time and to report the earnings of each employee. Employers must pay taxes in addition to the amounts withheld from their employees. This is an expense for the business.

11. The Vocab
Employee earnings are an operating expense and are often recorded in the Salaries Expense account.
Salaries Expense
The expense account used to record employees’ earnings.

12. Analyze and Journalize
Each type of payroll liability is recorded in a separate account.
Zip’s payroll register in Figure 12-5 on page 323 is the source document for the payroll.

13. Posting the Payroll Entry

14. Posting the Payroll Entry

15. Payroll Tax Expenses Taxes on Employees’ Wages Include
Employer’s FICA Taxes
Federal Unemployment Tax
State Unemployment Tax

16. What are these Taxes Unemployment Taxes
Taxes collected to provide funds for workers who are temporarily out of work; usually paid only by the employer (FUTA and SUTA).
Federal Unemployment Tax Act (FUTA)
Law that requires employers to pay unemployment taxes to the federal government.
State Unemployment Tax Act (SUTA)
Law that requires employers to pay employment taxes to individual states.

17. Where to Record the Tax Expense
The payroll taxes are recorded as business expenses in the Payroll Tax Expense account
Payroll Tax Expense account
The Payroll Tax Expense account is used to record the employer’s payroll taxes (FICA, FUTA, SUTA).

18. What does the General Journal Entry look like?

19. How about the General Ledger?

20. Paying Taxes
Social Security and Medicare Taxes (Both Employee and Employer)
A business makes one payment combining:
Employees’ Federal Income Taxes Withheld
Businesses can either use form 8109 or file electronically with the Electronic Federal Tax Payment System (EFTPS)

21. What does it all look like?
The biggest part to remember is that this is all coming out of cash when paid. So we will always credit cash in order to decrease the cash in the bank.
FICA
State
FUTA
FUTA

22. How about the General Ledger?

23. Tax Forms Related to Paying Tax Liabilities
Form W-2
Filed Annually
Form W-2
Wage and Tax Statement; form that summarizes an employee’s earnings and amounts withheld for federal, state, and local taxes.
Payroll-Related Tax Forms
Form W-3
Filed Annually
Form 941
Filed Quarterly
Form 940
Filed Annually
Form W-3
Transmittal of Wage and Tax Statements; summarizes the information contained on the employees’ Forms W-2 and accompanies the Forms W-2 sent to the federal government.
Form 940
Form that reports the employer’s federal unemployment taxes.
Form 941
Employer’s Quarterly Federal Tax Return; form used to report accumulated amounts of FICA and federal income tax withheld from employees’ earnings for the quarter, as well as FICA tax owed by the employer.