Accounting for Payroll, Payroll Taxes and Journal Entries - PowerPoint Presentation

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Accounting for Payroll, Payroll Taxes and Journal EntriesSlide3

Objectives

Calculate gross payroll using multiple methods

List and compute withholdingsCompute net payPrepare payroll registerExplain distribution methodsRecord payroll transactions in the general journalDescribe employer’s payroll taxesRecord the payment of tax liabilities in the general journalComplete payroll tax recordsSlide4

Using a Payroll System

pay period

The amount of time over which an employee is paid

.

payroll

A list of the employees and the payments due

to each employee for a specific pay period

.Slide5

Pay Categories

gross earnings

The total amount of money an employee earns in a pay period; also called

gross pay

.

salary

A fixed amount of money paid to an employee for

each pay period

.

wage

An amount of money paid to an employee at a

specified rate per hour worked

.

piece rate

A rate of pay based on the number of items produced

.

commission

An amount paid to an employee based on a percentage of the employee’s sales.Slide6

Overtime!

The overtime rate was set by the Fair Labor Standards

Act of 1938.Overtime RatePay rate employers are required to pay certain employees covered by state and federal laws; the Fair Labor Standards Act of 1938 sets the rate at 1.5 times the regular hourly rate after 40 hours per week.Slide7

Deductions

deduction

An amount that is subtracted from an employee’s gross earnings.Slide8

Withholding Allowances

An

allowance an individual claims on a Form W-4; it is used to calculate the amount of income tax withheld from an employee’s paycheck.Slide9

The W-4Slide10

Payroll Liabilities and Tax Records

Employers are

legally required to make tax deposits on time and to report the earnings of each employee. Employers must pay taxes in addition to the amounts withheld from their employees. This is an expense for the business.Slide11

The Vocab

Employee earnings are an operating expense and are often recorded in the Salaries Expense account

.Salaries ExpenseThe expense account used to record employees’ earnings.Slide12

Analyze and Journalize

Each type of payroll liability is recorded in a separate account.

Zip’s payroll register in Figure 12-5 on page 323 is the source document for the payroll.Slide13

Posting the Payroll EntrySlide14

Posting the Payroll EntrySlide15

Payroll Tax ExpensesSlide16

What are these Taxes

Unemployment Taxes

Taxes collected to provide funds for workers who are temporarily out of work; usually paid only by the employer (FUTA and SUTA).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.Slide17

Where to Record the Tax Expense

The payroll taxes are recorded as business expenses in the Payroll Tax Expense account

Payroll Tax Expense accountThe Payroll Tax Expense account is used to record the employer’s payroll taxes (FICA, FUTA, SUTA

).Slide18

What does the General Journal Entry look like?Slide19

How about the General Ledger?Slide20

Paying Taxes

A business makes one payment combining:

Social Security and

Medicare Taxes (Both Employee and Employer)

Employees’ Federal Income Taxes Withheld

Businesses

can either use form 8109 or file electronically with the Electronic Federal Tax Payment System (EFTPS)Slide21

What does it all look like?

The

biggest part to remember is that this is all coming out of cash when paid. So we will always credit cash in order to decrease the cash in the bank.

FICA

State

FUTA

FUTASlide22

How about the General Ledger?Slide23

Tax Forms Related to Paying Tax Liabilities

Payroll-Related Tax Forms

Form W-2

Filed Annually

Form W-3

Filed Annually

Form 941

Filed Quarterly

Form 940

Filed Annually

Form W-2

Wage and Tax Statement; form that summarizes an employee’s earnings and amounts withheld for federal, state, and local taxes

.

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 940

Form that reports the employer’s federal unemployment taxes.

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

.