Payroll Accounting Section 11 - PowerPoint Presentation

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Payroll Accounting Section 11

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Overview

Accounting Principles

Account Classifications Account Balances Journal Entries Recording Payroll Transactions Accounting Periods Accruals and Reversals Balancing and Reconciliations Financial Statements & Audits

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Accounting Principles

FASB vs. GASB

GAAP

Business Entity Concept Continuing Concern Concept Time Period Concept Cost Principle Objectivity Principle Matching Principle Realization Principle Consistency Principle

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Account Classifications

Double Entry Accounting

*always need a debit and a credit Equations:ACRONYMS

ALE:

Assets – Liabilities = Equity

REN:

Revenue – Expenses = Net Income

NICE:

Net Income – Income Distributed + Contributed Capital = Equity

[Contributed Capital + Net Income – Income Distributed = Equity]

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Account Classifications

Asset Accounts

Current

Tangible or Property, Plant and EquipmentIntangible or Deferred

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Account Classifications

Liability Accounts

Current

Wages payableTaxes WithheldContributions to Benefit PlansAccounts PayableLong TermNotes Payable

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Account Classifications

Equity

Contributed Capital

Retained EarningsNet IncomeRevenueAmounts received for goods & services soldExpenseCost of goods and services consumed

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Account Balances

Type of Account

Typical Balance

Debit

Credit

Asset

Debit

Increase

Decrease

Liability

Credit

Decrease

Increase

Equity

Credit

Decrease

Increase

Revenue

Credit

Decrease

Increase

Expense

Debit

Increase

Decrease

Contributed Capital

Credit

Decrease

Increase

Income Distributed

Debit

Increase

Decrease

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T Accounts

Payroll Checking

Debits

Credits

Wages Payable

Debits

Credits

$100.00

$100.00

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Chart of Accounts

Makes distinctions between Assets, Liabilities, Expenses, and Revenues

Makes distinctions between types of Assets, Liabilities, Expenses, and Revenues Uses cost centers or department codes

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Types of Journal Entries

Compound Entries

General Ledger Subsidiary Ledger Accounts Payable Accounts Receivable PPE (Fixed Assets)

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Double Entry Cash Journal Entry

A wage payment of $100 would appear

in a journal entry as follows:

Debit CreditSalary Expense $100Cash $100

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Compound EntryCash Journal Entry

A payroll check was issued and recorded to the general ledger.

Gross wages were $500. Taxes were withheld as follows: $75 for FIT, $35 for Soc Sec, $7.25 for Medicare.

Debit CreditSalary Expense $500 Federal taxes withheld $75.00Social security taxes withheld $21.00Medicare taxes withheld $7.25Cash $396.75

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Accrual TransactionsSimple Journal Entry

Record Wages of $6340 due to employee

but not yet paid

Debit CreditWages Expense $6340Wages Payable $6340

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Accrual TransactionsCompound Journal Entry

Salary of $6340 and Taxes of $485 Accrued,

but not yet paid

Debit CreditWages Expense $6340Payroll Tax Expense 485Wages Payable $6340Payroll Taxes Payable 485

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Accounting Periods

Monthly, Quarterly or Yearly

Fiscal Year vs. Calendar Year

Employment Tax Returns / Employee or Payee Information Statements

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Accrual & Reversing Entries

Accruals at end of accounting period

Reversal of Accruals

Reversal of Errors

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Accrual Journal Entries

An accrual entry of $1000 was made in 2013 for a bonus to be paid in Jan. 2014. The bonus was paid in 2014 and Soc Sec & Medicare taxes were paid by the employer of $76.50. Federal, SS & MC taxes were withheld from the check of $326.50. What is the journal entry to record the accrual in 2013 and what is the entry to record the payment of the bonus in 2014?

Debit CreditWages Expense $1000PR Taxes Expense $ 76.50 Wages Payable $1000PR Taxes Payable $ 76.50 Debit CreditWages Payable $1000PR Taxes Withheld $326.50

Cash $673.50

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Debit or Credit Quiz

Increase to Expenses

Increase to Liability

Decrease to AssetsDecrease to RevenueIncrease to CapitalDecrease to ExpensesIncrease to AssetsDebitCredit

Credit

Debit

Credit

Credit

Debit

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Balancing and Reconciliation

Periodic Balancing

What? Check against the payroll register Verify checks issued by A/P Verify the end of the month balanceWhen? Every payroll period Before filing tax returns Before sending out W-2’s or 1099’s

Bank Accounts – dual control

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Financial Statements

Balance Sheet

Income Statement Statement of Cash Flows Trial Balance Statement of Retained Earnings Notes to Financial Statements Audited Financial Statements

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Budgets and Variances

Budget vs. Actual format

Variances

Favorable Variance Unfavorable Variance

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Budgets and Variances Quiz Salary expense for the month of January was budgeted at $500. The actual expense incurred was $300. Is the variance favorable or unfavorable?

Answer: Favorable by $200

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Questions ?

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Overview Internal Controls

Sarbanes – Oxley Act

Check Fraud

Check 21 Accounting Interfaces with Payroll Terminology

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Internal Controls

Blank Checks

Computer System Edits Internal Auditor Negative Pay deductions Payroll Bank Account Payroll Distribution Phantom Employees Rotation of job duties

Segregation of job duties

Time Reporting

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Sarbanes-Oxley Act

Requires public companies to have a framework for identifying, documenting, and evaluating their internal controls over financial reporting.

Provides a logical way to analyze a company’s control system. Prohibits a public accounting firm from providing both external auditing and most non-auditing services to the same client and requires audit partners to rotate every 5 years.

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Check Fraud

Group 1 security features

Group 2 security features

Group 3 security featuresCheck 21 Substitute checks used in clearing process Impact on payroll

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Questions ?