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 Appendix F Payroll Accounting

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.

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 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.

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 Determining the Payroll

Gross Earnings
Total compensation earned by an employee (wages or
salaries, plus any bonuses and commissions).

Illustration F-1

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LO 1 Compute and record the payroll for a pay period.
 Determining the Payroll

Payroll Deductions

Mandatory: Voluntary:
 FICA tax  Charity
 Federal income tax  Insurance
 State and city income  Union dues
taxes  Pension plans

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LO 1 Compute and record the payroll for a pay period.
 Determining the Payroll

Payroll Deductions
Social Security taxes
Mandatory:
 Supplemental retirement,
 FICA tax employment disability, and
 Federal income tax medical benefits.

 State and city income  The rate is 6.2% for Social

taxes Security on the first $106,800
of gross earnings for each
employee plus 1.45% for
Medicare on the gross earnings
for each employee, no limit.

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LO 1
 Determining the Payroll

Payroll Deductions

Mandatory:  Employers are required to

 FICA tax withhold income taxes from
employees’ pay.
 Federal income tax
 Withholding amounts are
 State and city income
based on gross wages and the
taxes number of allowances claimed.

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LO 1 Compute and record the payroll for a pay period.
 Determining the Payroll

Payroll Deductions

Mandatory:
 FICA tax
 Federal income tax  Most states (and some
 State income tax cities) require employers to
withhold income taxes from
employees’ earnings.

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LO 1 Compute and record the payroll for a pay period.
 Determining the Payroll

Net Pay
Gross earnings minus payroll deductions.
Illustration F-7

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LO 1 Compute and record the payroll for a pay period.
 Recording the Payroll

Maintaining Payroll Department Records

Illustration F-8

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LO 1
 Recording the Payroll

Maintaining Payroll Department Records Illustration F-9

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LO 1
 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
United fund contributions payable 421.50
Union dues payable 115.00
Salaries and wages payable 11,522.73

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LO 1 Compute and record the payroll for a pay period.
 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

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LO 1 Compute and record the payroll for a pay period.
 Recording the Payroll

Illustration F-10
Paycheck and
statement of
earnings

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LO 1 Compute and record the payroll for a pay period.
 Employer Payroll Taxes

Payroll tax expense results from three taxes that

governmental agencies levy on employers.

These taxes are:  Same rate and maximum

 FICA tax earnings as the employee’s.

 Federal  The rate is 6.2% for Social

unemployment tax
 State unemployment
tax
Security on the first $106,800
of gross earnings for each
employee plus 1.45% for
Medicare on the gross earnings
for each employee, no limit.

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LO 2 Describe and record employer payroll taxes.
 Employer Payroll Taxes

Payroll tax expense results from three taxes that

governmental agencies levy on employers.

These taxes are:

 FUTA tax rate is 6.2% of first
 FICA tax $7,000 of taxable wages.

 Federal  Employers who pay the state

unemployment tax
 State unemployment
tax
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%.

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LO 2 Describe and record employer payroll taxes.
 Employer Payroll Taxes

Payroll tax expense results from three taxes that

governmental agencies levy on employers.

These taxes are:

 FICA tax
 Federal
unemployment tax
 SUTA basic rate is usually
 State unemployment
5.4% on the first $7,000 of
tax
wages paid.

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LO 2 Describe and record employer payroll taxes.
 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 2,383.59

FICA tax payable 1,316.57
*
State unemployment taxes payable 929.34
**
Federal unemployment taxes payable 137.68
***

* $ 17,210.00 x 7.65% = $1,316.57

** $17,210.00 x 5.4% = $929.34 *** $17,210 x .8% = $137.68
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LO 2 Describe and record employer payroll taxes.
 Employer Payroll Taxes

Question
Employer payroll taxes do not include:

a. Federal unemployment taxes.

b. State unemployment taxes.

c. Federal income taxes.

d. FICA taxes.

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LO 2 Describe and record employer payroll taxes.
 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.

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LO 2 Describe and record employer payroll taxes.
 Filing and Remitting Payroll Taxes
APPENDIX
Illustration F-12

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 Internal Control for Payroll

As applied to payroll, the objectives of internal control are

1. to safeguard company assets against unauthorized

payments of payrolls, and

2. to ensure the accuracy and reliability of the accounting

records pertaining to payrolls.

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LO 3 Discuss the objectives of internal control for payroll.
 Filing and Remitting Payroll Taxes
APPENDIX

Illustration F-13

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 Copyright

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