1. Unit 7: Analyzing & Journalizing Payroll Transactions
Chapter 6

2. Accounting for Payroll Transactions
Payroll requires entering data (in order) in the following places:
Payroll Register
Employee Earnings Records
General Journal
Journalize gross wages and withholdings
Journalize payroll taxes and worker’s compensation
Journalize period-end accruals
Post to General Ledger

3. *Use payroll register to journalize*
Payroll register lists employees in rows and shows following information for each
Gross wages
Taxes withheld and other deductions
Net pay
Payroll register shows (in columns)
Total of gross wages, each deduction and net
When completed, should “foot” or prove payroll register by ensuring that columns and rows all total to bottom right hand number
*Use payroll register to journalize*

4. Employee’s Earnings Record
Employee Earnings Record used to track cumulative totals (wages and taxes)
Enter row of data each pay period
Important because different wage caps for FUTA, SUTA and OASDI taxes
Need to track cumulative totals in order to issue W-2s and do quarterly SUTA reports
Prepare payroll analyses- various internal and external reports

5. Recording Gross Payroll and Withholdings
Next screens shows how to enter information into accounting system
Gross payroll is debited
Each withholding tax is liability
Each withholding tax is a liability
Advanced EIC reduces FIT payable
All other payroll deductions are liabilities as well

6. Other Deductions from Payroll
Any deduction that the ER makes from EE paycheck goes into a liability account (because they owe it to someone) such as:
Group life insurance premiums
Health insurance premiums
Purchase government savings bonds
Union dues
Deferred compensation (contributions to pensions plan)
Child support/other garnishments

7. Garnishments
A creditor can, through the courts, seek repayment of his/her money by garnishment
Employer is required to comply with garnishment order
ER must withhold funds from EE’s paycheck and submit it to appropriate authorities
Child support (see next slide)
Creditor garnishments limited depending upon state
Administrative wage and student loan garnishments to 15% of disposable earnings

8. Child Support
Family Support Act of 1988 required immediate withholding for child-support payments
ER can withhold a state mandated fee for administration
Some states now require electronic submission of garnished child support payments
Maximum amount that can be withheld from a person’s weekly disposable earnings varies according to different support orders, but can be as high 50-65% of disposable earnings

9. Pension & Retirement Contributions
Pension plans that involve employee contributions result in liability for the employer
Recorded in payroll entry
Pension Protection Act of 2006 gives company ability to automatically enroll EEs in company’s plan and deduct contributions from pay

10. Methods of Paying Wages/Salaries
Cash/Check
Electronic payment methods
EFTS (Electronic funds transfer system)
Distribute electronic pay stub
Pay Cards
Cards that allow ER to deposit payroll into prepaid card; card then utilize like debit or credit card
As of 2006, 30 states allow their use
Final Pay
Many states set time limit between termination and final wage pay out
CA and MI require immediate payment if EE is fired

11. Journal Entries to Record Payroll
Journal Entry #1 - Record gross wages, withholdings and net pay
Journal Entry #2 - Record Employer payroll tax expense
These two journal entries are always the same in format. You must make both of them every time you issue any paycheck (even if cutting a check for one day’s wages, for example).

12. Journal Entry #1 Gross OASD HI FIT SIT Insurance Net
$ $ $ $ $ $ $1,288.86

13. Journal Entry #1 Debit Wage Expense for gross payroll
Credit each withholding account- they are all liabilities
Credit cash (or wages payable) for net payroll
Journal Entry #1
Wage Expense
OASDI Payable
HI Payable
FIT Payable
SIT Payable
Insurance Payable
Cash 1,288.86

14. Journal Entry #2 Payroll for Period Ended 5/15/2008
EE Gross FUTA Wages SUTA Wages OASDI Wages HI Wages
A , , ,000.00 B
Total $ $ $ $ $
Tax $1.72 $ $ $26.75

15. Journal Entry #2
Debit Payroll Tax Expense for total of all payroll taxes that ER pays
Credit each account- they are all liabilities
Calculate all employer taxes utilizing wage bases and percentages
Journal Entry #2
Payroll Tax expense
FUTA Payable
SUTA Payable
OASDI Payable
HI Payable

16. Recording Deposit of Payroll Taxes
Look in general ledger, in each applicable liability account, for amount due
Deposit 941 Taxes
Note: Don’t forget to double OASDI Payable
OASDI and HI HI Payable
FIT Payable
Cash
Deposit State income tax
Sit Payable
Cash
Deposit SUTA
SUTA Payable 46.06
Cash

17. Workers’ Compensation
Workers’ compensation is an expense for the employer, who is required to purchase insurance to protect employees against work related injuries/disabilities
Laws differ by state
Premium are calculated based on employment classification– per $100 of payroll
Pay premium in advance based on projected wages
Then, at year-end, report actual wages and pay additional premium
Or may receive credit toward next year

18. Journal Entry for Workers Compensation
Debit Work Comp. Insurance Expense for premium paid
Credit Cash (if paying) or insurance Payable (if accruing)
Payroll for Period Ended 5/15/2008
Per $100 of payroll
EE Gross Position Workers Comp. Rate Premium
A Fabricator
B Administrator
Total $ $99.67
Journal Entry
Workers’ Comp. Insurance Expense
Cash or Insurance Payable

19. Journalize Period-End Accruals
Accrued wages should be recorded for wages earned by workers but not yet paid;
To record unpaid wages
Wage Expense
Wages Payable
Accrued vacation pay should be recorded for amount of vacation pay owed employees
Many ER’s now merging sick time and vacation time
Vacation Benefits Expense
Vacation Benefits Payable

20. Summary of Accounts Used
Account Title
Normal Balance
Type of Account
FIT Payable
Credit
Liability
SIT Payable
Insurance Payable
Union Dues Payable
Wages Payable
Vacation Benefits Payable

21. Summary of Accounts Used
Account Title
Normal Balance
Types of Account
Wage expense
Debit
Expense
Payroll Tax Expense
Workers’ Compensation Insurance Expense
Vacation Expense
OASDI Payable
Credit
Liability
HI Payable
FUTA Payable
SUTA Payable