Slide F

Appendix F

Payroll Accounting

Learning Objectives
After studying this chapter, you should be able to:
1.

Compute and record the payroll for a pay period.

2.

Describe and record employer payroll taxes.

3.

Discuss the objectives of internal control for payroll.

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Accounting for Payroll

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).

Determining the Payroll

Involves computing three amounts: (1) gross earnings, (2)
payroll deductions, and (3) net pay.

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Determining the Payroll

Gross Earnings
Total compensation earned by an employee (wages or
salaries, plus any bonuses and commissions).
Illustration F-1

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LO 1 Compute and record the payroll for a pay period.

Determining the Payroll

Payroll Deductions
Mandatory:

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Voluntary:

FICA tax

Charity

Federal income tax

Insurance

State and city income

taxes

Union dues

Pension plans

LO 1 Compute and record the payroll for a pay period.

Determining the Payroll

Payroll Deductions
Mandatory:

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FICA tax

Federal income tax

State and city income

taxes

Social Security taxes

Supplemental retirement,
employment disability, and
medical benefits.

The rate is 6.2% for Social

Security on the first $106,800
of gross earnings for each
employee plus 1.45% for
Medicare on the gross earnings
for each employee, no limit.
LO 1

Determining the Payroll

Payroll Deductions
Mandatory:

FICA tax

Federal income tax

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State and city income

taxes

Employers are required to

withhold income taxes from
employees pay.

Withholding amounts are

based on gross wages and the
number of allowances claimed.

LO 1 Compute and record the payroll for a pay period.

Determining the Payroll

Payroll Deductions
Mandatory:

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FICA tax

Federal income tax

State income tax

Most states (and some

cities) require employers to
withhold income taxes from
employees earnings.

LO 1 Compute and record the payroll for a pay period.

Determining the Payroll

Net Pay
Gross earnings minus payroll deductions.
Illustration F-7

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LO 1 Compute and record the payroll for a pay period.

Recording the Payroll

Maintaining Payroll Department Records
Illustration F-8

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LO 1

Recording the Payroll

Maintaining Payroll Department Records

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Illustration F-9

LO 1

Recording the Payroll

Recognizing Payroll Expenses and Liabilities
Illustration: Prepare the entry Academy Company would make to
record the payroll for the week ending January 14.
Salaries and wages expense
FICA taxes payable

1,316.57

Federal income taxes payable

3,490.00

State income taxes payable

344.20

United fund contributions payable

421.50

Union dues payable

115.00

Salaries and wages payable

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17,210.00

11,522.73

LO 1 Compute and record the payroll for a pay period.

Recording the Payroll

Recording Payment of the Payroll
Illustration: Prepare the entry Academy Company would make to
record the payment of the payroll.
Salaries and wages payable
Cash

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11,522.73
11,522.73

LO 1 Compute and record the payroll for a pay period.

Recording the Payroll

Illustration F-10
Paycheck and
statement of
earnings

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LO 1 Compute and record the payroll for a pay period.

Employer Payroll Taxes

Payroll tax expense results from three taxes that
governmental agencies levy on employers.
These taxes are:

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FICA tax

Federal
unemployment tax

State unemployment
tax

Same rate and maximum

earnings as the employees.

The rate is 6.2% for Social

Security on the first $106,800
of gross earnings for each
employee plus 1.45% for
Medicare on the gross earnings
for each employee, no limit.

LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes

Payroll tax expense results from three taxes that
governmental agencies levy on employers.
These taxes are:

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FICA tax

Federal
unemployment tax

State unemployment
tax

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%.

LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes

Payroll tax expense results from three taxes that
governmental agencies levy on employers.
These taxes are:

FICA tax

Federal
unemployment tax

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State unemployment
tax

SUTA basic rate is usually

5.4% on the first $7,000 of
wages paid.

LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes

Illustration: Academy records the payroll tax expense
associated with the January 14 payroll with the following entry.
Use the following rates: FICA 8%, state unemployment 5.4%,
federal unemployment 0.8%.
Payroll tax expense

2,383.59

FICA tax payable

1,316.57 *

State unemployment taxes payable

929.34 **

Federal unemployment taxes payable

137.68 ***

$ 17,210.00 x 7.65% = $1,316.57

**

$17,210.00 x 5.4% = $929.34

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***

$17,210 x .8% = $137.68

LO 2 Describe and record employer payroll taxes.

Employer Payroll Taxes

Question
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.
d. FICA taxes.

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LO 2 Describe and record employer payroll taxes.

Filing and Remitting Payroll Taxes

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.

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LO 2 Describe and record employer payroll taxes.

Filing and Remitting Payroll Taxes

APPENDIX

Illustration F-12

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Internal Control for Payroll

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.

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LO 3 Discuss the objectives of internal control for payroll.

Filing and Remitting Payroll Taxes

APPENDIX
Illustration F-13

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Copyright
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