H-1 Appendix H Payroll Accounting Accounting in Action 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 H-2 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 H-3 LO Determining the Payroll Gross Earnings Total compensation earned by an employee (wages or salaries, plus any bonuses and commissions) Illustration H-1 Computation of total wages H-4 LO Determining the Payroll Payroll Deductions Mandatory: H-5 Voluntary:  FICA tax  Charity  Federal income tax  Insurance  State income tax  Union dues  Pension plans LO Determining the Payroll Payroll Deductions Mandatory: H-6  FICA tax  Federal income tax  State income tax Social Security and Medicare tax Supplemental retirement, employment disability, and medical benefits Illustration H-3 FICA tax rate and tax base LO Determining the Payroll Payroll Deductions Mandatory:  FICA tax  Federal income tax  H-7 State income tax  Employers are required to withhold income taxes from employees’ pay  Withholding amounts are based on gross wages and the number of allowances claimed LO Determining the Payroll Payroll Deductions Mandatory: H-8  FICA tax  Federal income tax  State income tax Most states (and some cities) require employers to withhold income taxes from employees’ earnings LO Determining the Payroll Net Pay Gross earnings minus payroll deductions H-9 Illustration H-6 Computation of net pay LO Recording the Payroll Maintaining Payroll Department Records Illustration H-7 Employee earnings record H-10 LO 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 17,210.00 FICA Taxes Payable 1,316.57 Federal Income Taxes Payable 3,490.00 State Income Taxes Payable 344.20 H-12 United Fund Contributions Payable 421.50 LO 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 11,522.73 Cash 11,522.73 H-13 LO Recording Payment of the Payroll Illustration H-9 Paycheck and statement of earnings H-14 LO Appendix H Payroll Accounting Accounting in Action 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 H-15 Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers These taxes are: H-16  FICA taxes  Federal unemployment tax  State unemployment tax Same rate and maximum earnings as the employee’s LO Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers These taxes are: H-17  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 Employer Payroll Taxes Payroll tax expense results from three taxes that governmental agencies levy on employers These taxes are: H-18  FICA tax  Federal unemployment tax  State unemployment tax SUTA basic rate is usually 5.4% on the first $7,000 of wages paid LO Recording 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 FICA tax payable 1,316.57 Federal unemployment tax payable 137.68 State unemployment tax payable 929.34 * $ 17,210.00 x 7.65% = $1,316.57 ** $17,210 x 8% = $137.68 2,383.59 * ** *** *** $17,210.00 x 5.4% = $929.34 H-19 LO Employer Payroll Taxes Question Employer payroll taxes not include: a Federal unemployment taxes b State unemployment taxes c Federal income taxes d FICA taxes H-20 LO 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 H-21 LO Filing and Remitting Payroll Taxes APPENDIX Illustration H-11 H-22 LO Appendix H Payroll Accounting Accounting in Action 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 H-23 Internal Control for Payroll As applied to payrolls, the objectives of internal control are to safeguard company assets against unauthorized payments of payrolls, and to ensure the accuracy and reliability of the accounting records pertaining to payrolls H-24 LO Filing and Remitting Payroll Taxes APPENDIX Illustration H-12 Internal control for payroll H-25 LO Copyright “Copyright © 2014 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.” H-26 ... Wages Payable 11,522.73 Cash 11,522.73 H- 13 LO Recording Payment of the Payroll Illustration H- 9 Paycheck and statement of earnings H- 14 LO Appendix H Payroll Accounting Accounting in Action Learning... APPENDIX Illustration H- 11 H- 22 LO Appendix H Payroll Accounting Accounting in Action Learning Objectives After studying this chapter, you should be able to: [1] Compute and record the payroll for a... Copyright “Copyright © 2014 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without