1. 0 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 3 Accounting for a Payroll System Chapter 12Payroll Accounting Chapter 13Payroll Liabilities and Tax Records

2. 1 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 13 Payroll Liabilities and Tax Records What You’ll Learn  Record payroll transactions in the general journal.  Describe the employer’s payroll taxes.  Compute and complete payroll tax expense forms.  Record the payment of tax liabilities in the general journal.  Complete payroll tax reports.  Define the accounting terms introduced in this chapter.

3. 2 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 13, Section 1 Journalizing and Posting the Payroll What Do You Think? After calculations for payroll have been completed, how are these amounts transferred to the accounting records?

4. 3 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea The release of cash for payroll is a transaction. It must be journalized and posted. You Will Learn  how to analyze and journalize the payroll transaction.  how to post the payroll transaction. Journalizing and Posting the Payroll SECTION 13.1

5. 4 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Term  Salaries Expense Journalizing and Posting the Payroll SECTION 13.1

6. 5 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Analyzing and Journalizing the Payroll After payroll checks are written, the payment must be recorded in the accounting records. Employee earnings are an operating expense and are often recorded in the Salaries Expense account. Salaries Expense There are various deductions withheld by the employer but not immediately paid. These amounts are business liabilities and are recorded in separate accounts. Journalizing and Posting the Payroll SECTION 13.1

7. 6 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Analyzing and Journalizing the Payroll Each type of payroll liability is recorded in a separate account. Journalizing and Posting the Payroll SECTION 13.1

8. 7 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting the Payroll Entry An example follows of the general journal entry and the individual ledger accounts after posting. Journalizing and Posting the Payroll SECTION 13.1

9. 8 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing and Posting the Payroll SECTION 13.1

10. 9 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing and Posting the Payroll SECTION 13.1

11. 10 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing and Posting the Payroll SECTION 13.1

12. 11 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Term Review  Salaries Expense The expense account used to record employees’ earnings. Journalizing and Posting the Payroll SECTION 13.1

13. 12 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 13, Section 2 Employer’s Payroll Taxes What Do You Think? Who shares the earnings tax burden with employees?

14. 13 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Employers must pay taxes in addition to the amounts withheld from their employees. This is an expense for the business. You Will Learn  how to compute payroll tax expense.  how to journalize payroll tax expense.  how to post payroll tax expense. Employer’s Payroll Taxes SECTION 13.2

15. 14 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  Federal Unemployment Tax Act (FUTA)  State Unemployment Tax Act (SUTA)  unemployment taxes  Payroll Tax Expense Employer’s Payroll Taxes SECTION 13.2

16. 15 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Computing Payroll Tax Expenses An employer must pay taxes on employees’ wages. These taxes include:  the employer’s FICA taxes  the federal unemployment tax  the state unemployment tax Employer’s Payroll Taxes SECTION 13.2

17. 16 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Employer’s FICA Taxes Both the employee and the employer pay FICA taxes. The current rates are 6.2% for social security tax and 1.45% for Medicare tax. The employee and employer pay these taxes whether the employee is full-time, part- time, temporary, or permanent. Employer’s Payroll Taxes SECTION 13.2

18. 17 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Federal and State Unemployment Taxes There are two unemployment laws that require employers to pay unemployment taxes:unemployment taxes  the Federal Unemployment Tax Act (FUTA)Federal Unemployment Tax Act (FUTA)  the State Unemployment Tax Act (SUTA)State Unemployment Tax Act (SUTA) Employees are required to pay unemployment taxes in some states. Employer’s Payroll Taxes SECTION 13.2

19. 18 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing the Employer Payroll Taxes The payroll taxes are recorded as business expenses in the Payroll Tax Expense account.Payroll Tax Expense Employer’s Payroll Taxes SECTION 13.2

20. 19 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Journalizing the Employer Payroll Taxes The payroll taxes are recorded as business expenses in the Payroll Tax Expense account.Payroll Tax Expense Employer’s Payroll Taxes SECTION 13.2

21. 20 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Employer’s Payroll Taxes SECTION 13.2

22. 21 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Employer’s Payroll Taxes SECTION 13.2

23. 22 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting Payroll Taxes to the General Ledger This is an example of the individual ledger accounts after posting. Employer’s Payroll Taxes SECTION 13.2

24. 23 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Employer’s Payroll Taxes SECTION 13.2

25. 24 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  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.  unemployment taxes Taxes collected to provide funds for workers who are temporarily out of work; usually paid only by the employer (FUTA and SUTA). Employer’s Payroll Taxes SECTION 13.2

26. 25 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  Payroll Tax Expense The expense account used to record the employer’s payroll taxes (FICA, FUTA, SUTA). Employer’s Payroll Taxes SECTION 13.2

27. 26 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 13, Section 3 Tax Liability Payments and Tax Reports What Do You Think? Why are companies not permitted to keep the money they withhold from employee payroll checks?

28. 27 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea Employers make tax deposits and send payroll reports to the government. You Will Learn  how employers send payroll tax payments to the government.  how employers report payroll information to the government. Tax Liability Payments and Tax Reports SECTION 13.3

29. 28 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  Form 8109  Electronic Federal Tax Payment System (EFTPS)  Form W-2  Form W-3  Form 941  Form 940 Tax Liability Payments and Tax Reports SECTION 13.3

30. 29 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Paying the Payroll Tax Liabilities Payroll liabilities are paid at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

31. 30 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. FICA and Federal Income Taxes A business makes a payment combining social security and Medicare taxes and employees’ federal taxes withheld. Form 8109 is sent with the payment to an authorized financial institution or Federal Reserve Bank.Form 8109 The Electronic Federal Tax Payment System (EFTPS) is used by larger businesses to make deposits.Electronic Federal Tax Payment System (EFTPS) Tax Liability Payments and Tax Reports SECTION 13.3

32. 31 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. FICA and Federal Income Taxes Businesses pay FICA and federal income taxes withheld at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

33. 32 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. FICA and Federal Income Taxes Businesses pay FICA and federal income taxes withheld at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

34. 33 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. FICA and Federal Income Taxes Tax Liability Payments and Tax Reports SECTION 13.3

35. 34 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. FICA and Federal Income Taxes Tax Liability Payments and Tax Reports SECTION 13.3

36. 35 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State and Local Income Taxes Businesses pay state and local income taxes withheld at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

37. 36 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State and Local Income Taxes Businesses pay state and local income taxes withheld at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

38. 37 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State and Local Income Taxes Businesses pay state and local income taxes withheld at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

39. 38 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State and Local Income Taxes Businesses pay state and local income taxes withheld at regular intervals. Tax Liability Payments and Tax Reports SECTION 13.3

40. 39 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Federal Unemployment Taxes Most businesses pay the FUTA tax quarterly, unless it is less then $100 and only an annual payment is needed. Tax Liability Payments and Tax Reports SECTION 13.3

41. 40 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Federal Unemployment Taxes Most businesses pay the FUTA tax quarterly, unless it is less then $100 and only an annual payment is needed. Tax Liability Payments and Tax Reports SECTION 13.3

42. 41 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Federal Unemployment Taxes Most businesses pay the FUTA tax quarterly, unless it is less then $100 and only an annual payment is needed. Tax Liability Payments and Tax Reports SECTION 13.3

43. 42 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Federal Unemployment Taxes Most businesses pay the FUTA tax quarterly, unless it is less then $100 and only an annual payment is needed. Tax Liability Payments and Tax Reports SECTION 13.3

44. 43 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State Unemployment Taxes State unemployment taxes are usually paid quarterly. Tax Liability Payments and Tax Reports SECTION 13.3

45. 44 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State Unemployment Taxes State unemployment taxes are usually paid quarterly. Tax Liability Payments and Tax Reports SECTION 13.3

46. 45 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State Unemployment Taxes State unemployment taxes are usually paid quarterly. Tax Liability Payments and Tax Reports SECTION 13.3

47. 46 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. State Unemployment Taxes State unemployment taxes are usually paid quarterly. Tax Liability Payments and Tax Reports SECTION 13.3

48. 47 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Other Payroll Liabilities Payments for voluntary deductions are also made. Tax Liability Payments and Tax Reports SECTION 13.3

49. 48 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Other Payroll Liabilities Payments for voluntary deductions are also made. Tax Liability Payments and Tax Reports SECTION 13.3

50. 49 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Other Payroll Liabilities Payments for voluntary deductions are also made. Tax Liability Payments and Tax Reports SECTION 13.3

51. 50 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Other Payroll Liabilities Payments for voluntary deductions are also made. Tax Liability Payments and Tax Reports SECTION 13.3

52. 51 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Posting the Payment of Payroll Liabilities This is an example of the individual ledger accounts after posting. Tax Liability Payments and Tax Reports SECTION 13.3

53. 52 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Tax Liability Payments and Tax Reports SECTION 13.3

54. 53 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Tax Liability Payments and Tax Reports SECTION 13.3

55. 54 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Preparing Payroll Tax Forms Employers complete a variety of payroll-related tax forms. Tax Liability Payments and Tax Reports SECTION 13.3

56. 55 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Forms W-2 and W-3 Form W-2 Form W-2 is the Wage and Tax Statement and summarizes an employee’s earnings and withholdings for the calendar year. Form W-3 is the Transmittal of Wage and Tax Statements and summarizes the information from Forms W-2.Form W-3 Tax Liability Payments and Tax Reports SECTION 13.3

57. 56 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Form W-2 Tax Liability Payments and Tax Reports SECTION 13.3

58. 57 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Form W-3 Tax Liability Payments and Tax Reports SECTION 13.3

59. 58 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Forms 941 and 940 Form 941 Form 941 is the employer’s quarterly federal tax return and reports accumulated amounts of FICA and federal income taxes withheld from employees’ earnings and FICA taxes owed by the employer. Form 940 Form 940 is used to report the employer’s federal unemployment tax. Tax Liability Payments and Tax Reports SECTION 13.3

60. 59 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  Form 8109 Federal Deposit Tax Coupon; form sent with payment for FICA and federal income taxes or federal unemployment taxes.  Electronic Federal Tax Payment System (EFTPS) System used by large businesses to deposit tax payments by electronic funds transfer.  Form W-2 Wage and Tax Statement; form that summarizes an employee’s earnings and amounts withheld for federal, state, and local taxes. Tax Liability Payments and Tax Reports SECTION 13.3

61. 60 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  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 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. Tax Liability Payments and Tax Reports SECTION 13.3

62. 61 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  Form 940 Form that reports the employer’s federal unemployment taxes. Tax Liability Payments and Tax Reports SECTION 13.3

63. 62 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 1 Mandy’s Dance Studio had a payroll that had $2,565.78 in gross pay. Calculate the employer’s payroll taxes (assume that no employee has reached the maximum for social security deductions or for state or federal unemployment tax). Chapter 13 Review CHAPTER 13

64. 63 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 1 Step 1:Calculate the social security tax by multiplying gross wages by 6.2 percent ($2,565.78 .062 = $159.08). Step 2:Calculate the Medicare tax by multiplying gross wages by 1.45 percent ($2,565.78 .0145 = $37.20). Step 3:Calculate the state unemployment tax by multiplying gross wages by 5.4 percent ($2,565.78 .054 = $138.55). Step 4:Calculate the federal unemployment tax by multiplying gross wages by 0.8 percent ($2,565.78 .008 = $20.53) Chapter 13 Review CHAPTER 13

65. 64 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Question 2 Which payroll-related forms discussed in the chapter must a business file with the government? Chapter 13 Review CHAPTER 13

66. 65 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Answer 2 1.W-2 Wage and Tax Statement 2.W-3 Transmittal of Wage and Tax Statements 3.941 Employer’s Quarterly Federal Tax Return 4.940 Employer’s Annual Federal Unemployment (FUTA) Tax Return Chapter 13 Review CHAPTER 13

67. 66 Glencoe Accounting Unit 3 Chapter 13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Resources Glencoe Accounting Online Learning Center English Glossary Spanish Glossary