Unit VI – Part 1 Accounting for Salaries Overview

Background

Every business that has employees is required to keep some kind of record of wages and salaries paid. A business must have correct information about the reported earnings of its employees in order to make proper payment to them and in order to debit the amounts they have earned to the correct accounts. All businesses are required by law to keep earnings records for each employee and must be able to prove the correctness of the various required government deductions and contributions (e.g., taxes, SSS, Philhealth, etc.), which employers and employees pay. Employees want to be sure that the amounts they receive on payday are the amounts to which they are rightfully entitled. The summary of the employees’ salary is prepared in a report called payroll register. This is accomplished depending on the payroll period being followed by the company either in a weekly, semi-monthly or monthly basis.

Purpose

The purpose of “Accounting for Salaries” is to provide students a simple working knowledge on how to record salaries paid to employees with deductions required by the government and the corresponding remittances of those deductions made to proper government agencies.

In this unit

This unit contains the following topics: Topics Recording Salary Expenses See Page 2 of E

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Recording Salary Expenses
Overview

All business entities normally hire employees to perform its various operations. Salaries of these employees must be properly computed and paid at a specified time (e.g. weekly, bi-monthly, monthly). In this section, readers will be introduced on how to journalize transactions affecting payment of employees’ salaries with corresponding deductions as required by law or due to some other reasons such as loans made by employees from the company.

Social Security System

Under PD No. 24, “no person shall be employed unless he has a social security number.” It is therefore a requirement that all employees in the private sector be members of the Social Security System (SSS). The system provides benefits and services to its members which include the following: salary loans, educational loans, housing loans, sickness and death benefits, unemployment benefits, disability benefits, pension benefits and reimbursement of funeral expenses for deceased members. In consideration for all these benefits, the employee is required to make a monthly contribution in accordance with a contribution table provided by the SSS. This contribution of the employee is deducted from his salary. The corresponding contribution of the employer is an operating expense, i.e., SSS Contribution Expense.

Philhealth

The Philippine Medical Care Commission (PMCC) was established to provide hospitalization and other medical benefits to its members and their dependents. Contributions are made according to a given table. Similar to SSS, the contribution is shared between the employee and his employer. The contribution of the employee is deducted from his salary. The contribution of the employer is an operating expense, i.e., Philhealth Contribution Expense.

Pag-ibig Fund

The Pag-ibig Fund is a provident savings and housing fund for employees established under P.D. No. 1752. It aims to generate mass savings geared towards financing homes for its members. All private employees who are members of the SSS and their employers are covered by the fund compulsorily. The employer and its employees in accordance with the pag-ibig contribution table make contributions to the Pag-ibig Fund.
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Recording Salary Expenses, Continued
Witholding Income Tax

Under the Bureau of Internal Revenue regulations, every employer is required to deduct and withhold income tax from the salary of its employees in accordance with a withholding tax table. The amount of income tax to be withheld from the employees will depend on whether the employee is single, married, a head of the family, a married woman whose husband is also working, and on the number of his qualified dependents.

Illustration No. 1

The following is an illustration of how to record salary expense with various deductions: September 30, 20X1 transaction: J. Labrador, CPA paid salaries to employees, P32,500. Deductions were made for the following: SSS, P966.75; Philhealth, P343.75; Pag-ibig, P650 and withholding taxes, P2,850. Sept. 30 Salaries And Wages Expense SSS Premiums Payable Philhealth Contributions Payable Pag-Ibig Contribution Payable Withholding Taxes Payable Cash To record payment of salaries for the period Sept. 1-30 32,500 966.75 343.75 650.00 2,850.00 27,689.50

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Recording Salary Expenses, Continued
Illustration No. 2

The following are illustrations of how to record remittances made to different government agencies: October 10, 20X1 transaction: Remitted to Bureau of Internal Revenue (BIR) the tax withheld from employees’ salaries for the period Sept. 1-30. October 10 Withholding Taxes Payable Cash To record remittance made to BIR. October 20, 20X1 transaction: Remitted the amount due to SSS and Philhealth and Pag-ibig computed as follows: Employer’s share SSS Philhealth Pag-ibig Total 3,048.50 687.50 950.50 4,686.50 ============= Employees’ share 966.75 343.75 650.00 1,960.50 ============== 3,736.00 950.50 966.75 343.75 650.00 6,647 2,850 2,850

October 20

SSS and Philhealth Contributions Expense Pag-ibig Contributions expense SSS Premiums Payable Philhealth Contributions Payable Pag-ibig Contributions payable Cash To record remittances made to SSS, Philhealth, and Pag-ibig.

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