Module No.

6 – Labor Accounting (Control and Costing)

Learning Outcome/s:
 Familiarize with the common payroll procedures
 Familiarize with the documents that circulate in the entity’s payroll procedures

Core Values/Biblical Principles:

“I sought the Lord, and he answered me and delivered me from all my fears.” – Psalm 34:4 (ESV)

Introduction:
Labor cost is one of the major cost elements in a manufacturing operation. Accounting system for labor
costs includes keeping of records of time worked by employees, computing and recording their earnings,
and charging costs to production.

Body:
Timekeeping Procedures
Timekeeping function involves two major procedures in labor costing:
1. Accumulation of the total number of hours worked by each employee so that their earnings can
be computed
2. Determination how the labor hours were spent so that distribution can be made in the cost
records

Time records – serve as a basis for calculating gross wages of employees. It also serves as a basis to
compute the employer’s payroll taxes.

Time card – this is prepared to gather data on how many hours have been worked by each hourly rate
employee. This is the most common form of employee’s attendance record. This is sometimes called
clock card.

Payroll register – the number of hours worked each day of employees under the hourly rate is
transferred from the time card to this document. This is sometimes called payroll sheet.

Following are the usual payroll deductions as prescribed by the government:

1. Income taxes
2. Social Security System Contributions
3. Philippine Health Insurance Corporation (Phil. Health) Contributions
4. PAG-IBIG fund or Development Mutual Fund Contributions

Recording Payroll from the Payroll Register

Factory payroll (gross earnings) xxx
Withholding tax payable xxx
SSS contributions payable xxx
Phil. Health contributions payable xxx
PAG-IBIG contributions payable xxx
Payroll payable (net earnings) xxx

Payroll payable xxx

Vouchers payable xxx

Voucher payable xxx

Cash in bank xxx
Charging Labor Costs into Production
Labor costs are to be allocated between direct labor and indirect labor costs. Direct labor costs are
charged to Work in Process while indirect labor costs are charged to Manufacturing Overhead Control
account.

Work in progress xxx

Manufacturing overhead control xxx
Factory payroll xxx

Summary:
Labor cost is one of the major portions of the production cost of a company. As such, computing and
recording the employee’s wages shall be made accurately for the benefit of both the employer and its
employees.

References:
Cost Accounting Principles and Procedural Applications by Pedro P. Guerrero, 2014-2015 edition