1. Slide D 1

2. Slide D 2 Appendix D Payroll Accounting Financial Accounting, Seventh Edition

3. Slide D 3 1. 1.Discuss the objectives of internal control for payroll. 2. 2.Compute and record the payroll for a pay period. 3. 3.Describe and record employer payroll taxes. Study Objectives

4. Slide D 4 The term “payroll” pertains to both: Salaries - managerial, administrative, and sales personnel (monthly or yearly rate). Wages - store clerks, factory employees, and manual laborers (rate per hour). Payroll Accounting Determining the payroll involves computing three amounts: (1)gross earnings, (2)payroll deductions, and (3)net pay.

5. Slide D 5 As applied to payroll, the objectives of internal control are: 1. to safeguard company assets against unauthorized payments of payrolls, and 2. to ensure the accuracy and reliability of the accounting records pertaining to payrolls. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

6. Slide D 6 Fraud prevented: Fictitious employees being added to payroll. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

7. Slide D 7 Fraud prevented: Employee paid for hours not worked. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

8. Slide D 8 Fraud prevented: Payroll calculation errors and inappropriate amounts being paid to an employee. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

9. Slide D 9 Fraud prevented: Checks lost through theft; falsely endorsed used to pay for hours not worked. SO 1 Discuss the objectives of internal control for payroll. Internal Control for Payroll

10. Slide D 10 Total compensation earned by an employee (wages or salaries, plus any bonuses and commissions). Gross Earnings SO 2 Compute and record the payroll for a pay period. Determining the Payroll Illustration D-3

11. Slide D 11 Mandatory: FICA taxes Federal income tax State income tax Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll Voluntary: Charity Retirement Union dues Health and life insurance Pension plans

12. Slide D 12 Mandatory: FICA taxes Federal income tax State income tax Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll Social Security taxes  Supplemental retirement, employment disability, and medical benefits.  In 2009, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $106,800 of gross earnings for each employee.

13. Slide D 13 Payroll Deductions SO 2 Compute and record the payroll for a pay period. Determining the Payroll  Employers are required to withhold income taxes from employees pay.  Withholding amounts are based on gross wages and the number of allowances claimed. Mandatory: FICA taxes Federal income tax State income tax

14. Slide D 14 Employee must complete an Employee’s Withholding Allowance Certificate (Form W-4). SO 2 Compute and record the payroll for a pay period. Determining the Payroll Illustration D-5

15. Slide D 15 SO 2 Compute and record the payroll for a pay period. Determining the Payroll  Most states (and some cities) require employers to withhold income taxes from employees’ earnings. Payroll Deductions Mandatory: FICA taxes Federal income tax State income tax

16. Slide D 16 Gross earnings minus payroll deductions. Net Pay SO 2 Compute and record the payroll for a pay period. Determining the Payroll Illustration D-7

17. Slide D 17 Employer required by law to keep a cumulative record of each employee’s gross earnings, deductions, and net pay during the year. Maintaining Payroll Department Records SO 2 Compute and record the payroll for a pay period. Recording the Payroll Illustration D-8 Employee earnings record

18. Slide D 18 Recognizing Payroll Expenses and Liabilities SO 2 Compute and record the payroll for a pay period. Recording the Payroll Illustration D-9

19. Slide D 19 Illustration: From the payroll register in Illustration D-9, Academy makes a journal entry to record the payroll. SO 2 Compute and record the payroll for a pay period. Recording the Payroll Office Salaries Expense 5,200.00 Wages Expense 12,010.00 FICA Taxes Payable 1,376.80 Federal Income Taxes Payable 3,490.00 State Income Taxes Payable 344.20 United Way Payable 421.50 Union Dues Payable 115.00 Salaries and Wages Payable 11,462.50

20. Slide D 20 Using the facts from the previous Illustration. Recording Payment of the Payroll SO 2 Compute and record the payroll for a pay period. Recording the Payroll Salaries and wages payable11,462.50 Cash11,462.50

21. Slide D 21 Payroll tax expense results from three taxes that governmental agencies levy on employers. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes These taxes are: FICA taxes Federal unemployment tax State unemployment tax  Same rate and maximum earnings as the employee’s.  In 2009, the rate was 7.65% (6.2% Social Security plus 1.45% Medicare) on the first $106,800 of gross earnings for each employee.

22. Slide D 22 Payroll tax expense results from three taxes that governmental agencies levy on employers. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes  FUTA tax rate is 6.2% of first $7,000 of taxable wages.  Employers who pay the state unemployment tax on a timely basis will receive an offset credit of up to 5.4%. Therefore, the net federal tax rate is generally 0.8%. These taxes are: FICA taxes Federal unemployment tax State unemployment tax

23. Slide D 23 Payroll tax expense results from three taxes that governmental agencies levy on employers. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes  SUTA basic rate is usually 5.4% on the first $7,000 of wages paid. These taxes are: FICA taxes Federal unemployment tax State unemployment tax

24. Slide D 24 Illustration: The entire amount of gross pay ($17,210.00) shown in the payroll register in Illustration D-9 is subject to each of the three taxes mentioned above. Accordingly, Academy records the payroll tax expense. SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes Recording Employer Payroll Taxes Payroll Tax Expense 2,443.82 FICA Taxes Payable 1,376.80 Federal Unemployment Taxes Payable 137.68 State Unemployment Taxes Payable 929.34

25. Slide D 25 Employer payroll taxes do not include: a.Federal unemployment taxes. b.State unemployment taxes. c.Federal income taxes. d.FICA taxes. Question SO 3 Describe and record employer payroll taxes. Employer Payroll Taxes

26. Slide D 26 Companies must report FICA taxes and federal income taxes withheld no later than one month following the close of each quarter. Companies generally file and remit federal unemployment taxes annually on or before January 31 of the subsequent year. Companies usually file and pay state unemployment taxes by the end of the month following each quarter. Employers must provide each employee with a Wage and Tax Statement (Form W-2) by January 31. SO 3 Describe and record employer payroll taxes. Filing and Remitting Payroll Taxes

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