7 - 1 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Payroll Concepts
and Procedures
Chapter 7
7 - 2 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 1
Calculating overtime pay,
FICA deductions for
Social Security and
Medicare, and federal
income tax withholding.
7 - 3 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-1 (Introduction
to Payroll Accounting)
The Fair Labor Standards Act requires
overtime pay for hours worked over
40 hours in any work week for
interstate commerce businesses.
Amounts over 40 hours are paid
1 times the regular pay rate.
7 - 4 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-1 (Introduction
to Payroll Accounting)
Payroll taxes or income tax withholdings
Payroll tax deposits
Form W-4
7 - 5 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-1 (Introduction
to Payroll Accounting)
Withholding for Federal Insurance
Contributions Act (FICA):
Social Security: Employers deduct 6.2% of
gross earnings up to a maximum ($87,000)
base limit for each employee each year.
Medicare: Employers deduct 1.45% of
gross earnings from each employees
paychecks every payday (there is no limit).
7 - 6 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-1 (Introduction
to Payroll Accounting)
Withholding for State and Local Income Taxes
(SIT) requires employers to withhold taxes
from employees paychecks for any
jurisdictions that assess these taxes.
Other deductions: Employees agree to voluntary
deductions for items such as medical insurance,
union dues, and charitable contributions.
7 - 7 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 2
Preparing a payroll register.
7 - 8 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
This is used to record cumulative and
current earnings plus deductions.
It provides totals needed for the computation
of payroll taxes for all employees.
7 - 9 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
A separate page must be maintained
for each of the employees to
verify and cross-check amounts.
This is the page which provides information
to prepare each employees W-2
for the end of each calendar year.
7 - 10 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
Allowances and marital status
Cumulative (YTD) earnings
Salary for pay period
Regular earnings
7 - 11 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
Overtime earnings
Gross earnings
Cumulative earnings
Taxable earnings
7 - 12 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
Taxable earnings for Social Security tax
Taxable earnings for Medicare tax
FICA deduction Social Security
FICA deduction Medicare tax
7 - 13 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
Federal income tax (FIT)
State income tax (SIT)
Medical insurance
Net pay
7 - 14 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
Check number
Distribution of expense accounts
7 - 15 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-2
(The Payroll Process)
Gross earnings $934.20
Less:
FICA Social Security tax 57.92
FICA Medicare tax 13.55
Federal income tax 95.00
State income tax 74.74
Medical insurance 22.00
Net pay $670.99
7 - 16 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 3
Journalizing and posting
the payroll entry from
the payroll register.
7 - 17 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-3 (Recording
and Paying the Payroll)
Analyst Expense 934.20
Programming Expense 3,748.94
FICA SS Tax Payable 290.35
FICA Medicare Tax Payable 67.91
Federal Income Tax Payable 715.00
State Income Tax Payable 374.66
Medical Insurance Payable 88.00
Wages and Salaries Payable 3,147.22
To record payroll for August 20, 200x
7 - 18 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-3 (Recording
and Paying the Payroll)
Payroll
information
Recorded in the
payroll register
Record payroll
journal entry
Post payroll information
in the specific
ledger accounts
Data from register
7 - 19 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-3 (Recording
and Paying the Payroll)
The following journal entries would
result in paying the payroll.
Payroll Checking Cash xxx
Cash xxx
Wages and Salaries Payable xxx
Payroll Checking Cash xxx
7 - 20 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Unit 7-3 (Recording
and Paying the Payroll)
Payroll checks show the individual
employee earnings record
on the paycheck stubs.
This earnings record lists current
and cumulative payroll information
for the employee.
7 - 21 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Learning Objective 4
Maintaining an individual
employee earnings record.
7 - 22 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
Earnings summary
Deductions
Net pay
Cumulative earnings (YTD)
Employee Earnings Record
7 - 23 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater
End of Chapter 7