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Wages Control Account
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Revision of Previous Lessons
What T can cause differences between the bank statement and the cash book? Do you add or subtract unpresented cheques from a bank reconciliation statement? What is the accounting equation? Work out the capital in this business: Vehicles: £6,500 Fixtures and fittings: £2,800 Inventory: £4,100 Bank: £150 Loan: £5,000
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Fill in all possible entries and name the account.
Bal b/d Bal c/d
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PLCA PLCA Bal b/d Purchase Returns Purchases Contra Bank
Discount Received Bal c/d
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Aims of the Session Payroll transactions
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Payroll Transactions Accounting entries which record wages and salaries paid to employees. Difference between wages and salaries? Requires journal entries
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What Transactions are Included in the Accounts?
Gross pay. Net pay. Income tax. Employers NI. Employees NI. Pension fund contributions by the employer. Pension fund contributions by the employee. Voluntary deductions.
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Accounts Used Wages control account Records:
All payroll transactions, MUST balance with other wages accounts. Bank The net wages paid to the employees. Payments to outside agencies. Wages expense account Employees gross pay Employers’ NI Employers’ pension contributions. HMRC The amount owed to HMRC for income tax and NI. Pension fund Amount paid to external pension funds. Other voluntary deductions Trade union fees, charity donations, child maintenance.
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GROSS + ER The full cost to the employer to employ the work force is: The GROSS pay + anything ending in ER Gross pay + employer pension contributions + employer National Insurance. This is called the WAGES EXPENSE
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Pleasant Riderhood Pleasant Riderhood makes bike saddles and employs 5 staff. It runs a monthly payroll, figures for November are: Gross Pay £5,500 Net pay £3,820 Income tax £900 Employer’s NI £550 Employees’ NI £450 Employer’s pension £275 Employees’ pension Voluntary deductions to the Cat Protection League £55
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Pleasant Riderhood Wage Expense
Amount it costs to employ workforce (gross + ER) Gross Pay Plus £5,500 Employer’s National Insurance £550 Employer’s Pension Contributions £275 £6325
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Pleasant Riderhood – Net Wages
Payments due to the Employees – Pay minus deductions (Money out the bank) Gross Pay Less £5,500 Income tax £900 National Insurance £550 Pension contributions £275 Cats’ Protection League £55 Net pay due £3820
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Pleasant Riderhood - HMRC
Payments due to the HMRC Income tax deducted from pay £900 Employers’ National Insurance £550 Employee’s NI contributions £450 TOTAL £1900
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Pleasant Riderhood – Pension Fund
Payments due to the Pension Fund Employers’ contribution £275 Employee’s contributions TOTAL £550
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Pleasant Riderhood – Voluntary Deductions
Cats’ Protection League £55 TOTAL
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Pleasant Riderhood Journal & Ledger Entries Wages Expense
The amounts are then be transferred to the journal, before being input into the double entry system. First the wages expense would be recorded – the total cost of employing the workforce. Date Details Reference Dr Cr 30 Nov Wages expense GL 6325 Wages control Transfer of wages expense Dr Wages Expense Cr Wages Control £6325 Dr Wages Control Cr Wages expense £6325
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Pleasant Riderhood Net Wages
Then make entries for the bank payment, now everything needs to be debited to the wages control account. Date Details Reference Dr Cr 30 Nov Wages control GL 3820 Bank Net wages paid to employees Dr Wages Control Cr Bank £3820 Wages Expense £6325 Dr Bank Cr Wages control £3820
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Pleasant Riderhood Pension Liability
Then make entries for the pension liability. Date Details Reference Dr Cr 30 Nov Wages control GL 550 Pension Amount due to pension fund Dr Wages Control Cr Bank £3820 Wages Expense £6325 Pensions £550 Dr Pensions Cr Wages control £550
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Pleasant Riderhood HMRC Liability
Then make entries for the HMRC liability. Date Details Reference Dr Cr 30 Nov Wages control GL 1,900 HMRC Amount due to pension fund Dr Wages Control Cr Bank £3820 Wages Expense £6325 Pensions £550 HMRC £1,900 Dr HMRC Cr Wages control £1 ,900
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Pleasant Riderhood Voluntary Deductions
Then make entries for the voluntary deductions. Date Details Reference Dr Cr 30 Nov Wages control GL 1,900 Cats’ Protection League 55 Amount due to Cats’ Protection League Dr Wages Control Cr Bank £3820 Wages Expense £6325 Pensions £550 HMRC £1,900 Cats Protect £55 Dr Cats’ Protection League Cr Wages control £55
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Finally Balance the Wages Control
Dr Wages Control Cr Bank £3820 Wages Expense £6325 Pensions £550 HMRC £1,900 Cats Protect £55 6,325 £6,325
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If You Get Stuck.... Think of the logical place where the wages gets paid from – the bank: So if you’re crediting the bank the opposite transaction in the wages control account must be a debit. Everything else needs to debited as well, apart from the wages expense (the total/balancing figure).
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Questions
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Exercises
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