1. Chapter 21: managing payroll and inventory

2. 21.2 learning objectives Identify 6 steps in managing payroll system
Describe the common methods of paying employees
Discuss required and voluntary payroll deductions
Identify accounts used in recording payroll

3. Steps in the payroll system
Calculate total earnings of each employee
Calculate deductions
Prepare payroll records
Prepare a paycheck for each employee
Record payroll in the accounting system

4. Importance of payroll records
Payroll: list of employees and the payments due to each one for a specific amount of time
Each specific amount of time called pay period
2 most common pay periods are weekly and bi-weekly (some pay 1 time per month)
Payroll system makes sure
People paid on time
Have correct amounts on their paychecks

5. 2 major goals of a business when setting up a payroll system:
Collect and process all info needed to prepare and issue paychecks
Maintain payroll records needed for accounting and prepare reports for government agencies

6. What you need to complete each pay period if you work in payroll:
Calculate gross earnings
Calculate payroll deductions
Prepare payroll records
Prepare paychecks
Record payroll info in accounting records
Report payroll to government

7. Calculating gross earnings
Gross earnings: the total amount of money an employee earns in a pay period
3 of the most common methods of paying employees
Salary
Hourly
Salary + commission

8. salary
Salary: a fixed amount of money paid to an employee for each pay period, no matter how many hours they work
Paid to managers and supervisors

9. hourly A specific amount of money paid per hour to an employee
Part-time jobs and entry-level full time jobs
Gross earnings can change week to week
Time card is used to keep track of accuracy

10. Overtime pay The amount paid above the normal hourly rate
Usually it is 1.5 times the normal rate
4 steps:
Find out how much they made for first 40 hours
Multiply hourly rate by 1.5 to get OT rate
Multiply OT rate by # hours worked over 40
Add together

11. commission
An amount of money paid to an employee based on a percentage of their sales
The more they sell, the more they make
3 steps
Calculate weekly or bi-weekly gross pay
Multiply commission percentage by total sales $$
Add together

12. Calculating payroll deductions
Various amounts that are subtracted from an employee’s gross earnings
Some are required by your city or state or fed.
Some you sign up for voluntarily

13. Required deductions
Federal income tax—based on how much you make; the more allowances you have, (adjustments) the less tax withheld
EX: single person claims 0 or 1; married person could claim more
FICA (federal insurance contributions act)
Social security tax —provides retirement, disability (6.2%)
Medicare tax —contributes to elderly insurance (1.45%)
State and local income taxes
Percentage of your gross earnings

14. Voluntary deductions Only if you request them Health or life insurance
Charity contributions
Union dues
Pensions/retirement plans (401k)
Direct deposits into bank account

15. Preparing payroll records
To keep accurate payroll records, you are expected to:
Calculate earnings and deductions correctly
Distribute employee paychecks on time
Keep accurate and safe records
Pay taxes owed to government agencies on time
File all payroll reports to government on time

16. Preparing payroll register
Record that summarizes information about employee earnings and deductions for each pay period
3 main sections:
Earnings (records regular pay, OT and gross)
Deductions (required & voluntary each pay period)
Net pay (amount that is leftover—take home)

17. Preparing paychecks
You receive a printed explanation of how your net pay is calculated (paystub)
Direct deposit: automatically deposited into account on payday
You still receive a paystub
Funds available faster, don’t lose check
Reduce expenses of paper, manual labor

18. Recording payroll information
The salaries expense account
Total gross earnings: total amount you pay to your employees before any deductions are taken out
Deductions to Liabilities
Liabilities are identified on the account by the word PAYABLE
They remain liabilities until business makes required payments to the government, insurance, etc.

19. Cash in bank Last account to be affected by payroll
The account that records all the cash that enters and leaves the business
Reduced as you make payments on your payroll liabilities

20. Employer’s payroll taxes
Employers must match what you contribute to FICA (if you pay $25, they must pay $25)
Employers must also match medicare
Employers pays federal and state unemployment taxes
Amount of $$ a business owes the government is outlined in the IRC—internal revenue code

21. IRC The IRC addresses a number of issues:
Determine if federal tax coverage rules apply
Computing an employee’s taxable wages
Calculating amount of taxes to withhold
Deposit correct amount of taxes with government
Filing employment tax returns

22. 21.2 learning objectives
Identify information needed for an inventory control system
Summarize methods of determining inventory quantity
Explain methods used to calculate cost of inventory
Analyze inventory turnover

23. Managing an inventory system
In order to control the purchase and sale of merchandise for your business, you must have an effective system of inventory
4 stages of merchandise
Ordering merchandise (order when current inventory runs low in order to meet demand)
Storing merchandise (stored safely)
Displaying merchandise (in an appealing way)
Selling merchandise (brings in cash for business and reduces inventory)

24. Determining amount of inventory
There are 2 accounting methods used to determine how much inventory is in stock:
Perpetual inventory system: keeps constant, up to date record of merchandise on hand. When items are sold, they are deducted from inventory
Point of sale terminals: electronic cash registers linked to a central computer that keeps track of sales
Periodic inventory system: inventory records are updated only after someone makes an actual, physical count of the merchandise on hand. You count everything, then update inventory

25. Determining cost of inventory
Specific identification method: exact cost of each item is determined and assigned to each item. Actual cost of each item obtained from the invoice.
Most accurate costing method
First-in, first-out method (FIFO): assumes the first items purchased (first in) are the first items sold (first out). Recent purchases to go the back of the line.
Last-in, first-out method (LIFO): assumes last items purchased as the first to be sold

26. Chapter 21 review activities
Reviewing key concepts #1-7
Your financial figures #1
Math review problems
Worksheet page 247,