Appd

Appendix
D-1
Appendix D
Payroll Accounting
Financial Accounting, IFRS Edition

Weygandt Kimmel Kieso
Appendix
D-2
Study Objectives
1. Discuss the objectives of internal control for payroll.

2. Compute and record the payroll for a pay period.
3. Describe and record employer payroll taxes.
Appendix
D-3
Payroll Accounting
While the mechanics of payroll accounting are the

same around the world, the particular accounts
used are country-specific. Each country has
different laws, different health and social programs,
and different taxes related to payroll. The
examples in this appendix illustrate payroll
accounting applied in the United States.
Appendix
D-4
Payroll Accounting
The term 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.
Appendix
D-5
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.
Appendix
D-6
SO 1 Discuss the objectives of internal control for payroll.
Fraud prevented:
Fictitious employees
being added to payroll.
Appendix
D-7
Fraud prevented:
Employee paid for
hours not worked.
Appendix
D-8
Fraud prevented:
Payroll calculation
errors and
inappropriate amounts
being paid to an
employee.
Appendix
D-9
Fraud prevented:
Checks lost through
theft; falsely endorsed
used to pay for hours
not worked.
Appendix
D-10
Determining the Payroll
Gross Earnings
Total compensation earned by an employee (wages or
salaries, plus any bonuses and commissions).
Illustration D-3
Appendix
D-11
SO 2 Compute and record the payroll for a pay period.
Payroll Deductions
Mandatory: Voluntary:
FICA taxes Charity
Federal income tax Retirement
State income tax Union dues
Health and life insurance
Pension plans
Appendix
D-12
Social Security taxes

Payroll Deductions
Supplemental retirement,
Mandatory: employment disability, and
FICA taxes medical benefits.
Federal income tax In 2009, the rate was 7.65%

(6.2% Social Security plus
State income tax
1.45% Medicare) on the first
$106,800 of gross earnings
for each employee.
Appendix
D-13
Payroll Deductions
Mandatory: Employers are required to
withhold income taxes from
FICA taxes
employees pay.
Federal income tax
Withholding amounts are
State income tax based on gross wages and
the number of allowances
claimed.
Appendix
D-14
Employee must complete an Employees Withholding

Allowance Certificate (Form W-4).
Illustration D-5
Appendix
D-15
Payroll Deductions
Mandatory:
FICA taxes
Federal income tax Most states (and some
State income tax cities) require employers
to withhold income taxes
from employees earnings.
Appendix
D-16
Net Pay
Gross earnings minus payroll deductions.
Illustration D-7
Appendix
D-17
Recording the Payroll
Maintaining Payroll Department Records

Employer required by law to keep a cumulative record of
each employees gross earnings, deductions, and net pay
during the year.
Illustration D-8 Employee

earnings record
Appendix
D-18
Recognizing Payroll Expenses and Liabilities

Illustration D-9
Appendix
D-19
Illustration: From the payroll register in Illustration D-9,

Academy makes a journal entry to record the payroll.
Office Salaries Expense 5,200.00

Wages Expense 12,010.00
FICA Taxes Payable 1,376.80
Federal Income Taxes Payable 3,490.00
State Income Taxes Payable 344.20
United Way Payable 421.50
Union Dues Payable 115.00
Salaries and Wages Payable 11,462.50
Appendix
D-20
Recording Payment of the Payroll
Using the facts from the previous Illustration.
Salaries and Wages Payable 11,462.50

Cash 11,462.50
Appendix
D-21
Employer Payroll Taxes
Payroll tax expense results from three taxes that

governmental agencies levy on employers.
These taxes are: Same rate and maximum
FICA taxes earnings as the employees.
Federal In 2009, the rate was 7.65%

unemployment tax (6.2% Social Security plus
1.45% Medicare) on the first
State unemployment
$106,800 of gross earnings
tax
for each employee.
Appendix
D-22
SO 3 Describe and record employer payroll taxes.

These taxes are: FUTA tax rate is 6.2% of first

$7,000 of taxable wages.
FICA taxes
Employers who pay the state
Federal
unemployment tax on a timely
unemployment tax
basis will receive an offset
State unemployment credit of up to 5.4%.
tax Therefore, the net federal tax
rate is generally 0.8%.
Appendix
D-23

These taxes are:

FICA taxes
Federal
unemployment tax
SUTA basic rate is usually
State unemployment
5.4% on the first $7,000 of
tax
wages paid.
Appendix
D-24
Recording Employer Payroll Taxes

Illustration: The entire amount of gross pay ($17,210.00)
shown in the payroll register in Illustration D-9 is subject to
each of the three taxes mentioned above. Accordingly,
Academy records the payroll tax expense.
Payroll Tax Expense 2,443.82

FICA Taxes Payable 1,376.80
Federal Unemployment Taxes Payable 137.68
State Unemployment Taxes Payable 929.34
Appendix
D-25
Question
Employer payroll taxes do not include:
a. Federal unemployment taxes.
b. State unemployment taxes.
c. Federal income taxes.
d. FICA taxes.
Appendix
D-26
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.
Appendix
D-27
Copyright
Copyright 2011 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.
Appendix
D-28

Appd

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Appd

Uploaded by

Copyright:

Available Formats

Appendix

Financial Accounting, IFRS Edition

1. Discuss the objectives of internal control for payroll.

While the mechanics of payroll accounting are the

The term payroll pertains to both:

Determining the payroll involves computing three amounts:

As applied to payroll, the objectives of internal control are:

1. to safeguard company assets against unauthorized

2. to ensure the accuracy and reliability of the accounting

Social Security taxes

Federal income tax In 2009, the rate was 7.65%

Employee must complete an Employees Withholding

Maintaining Payroll Department Records

Illustration D-8 Employee

Recognizing Payroll Expenses and Liabilities

Illustration: From the payroll register in Illustration D-9,

Office Salaries Expense 5,200.00

Recording Payment of the Payroll

Using the facts from the previous Illustration.

Salaries and Wages Payable 11,462.50

Payroll tax expense results from three taxes that

These taxes are: Same rate and maximum

FICA taxes earnings as the employees.

Federal In 2009, the rate was 7.65%

Payroll tax expense results from three taxes that

These taxes are: FUTA tax rate is 6.2% of first

Payroll tax expense results from three taxes that

These taxes are:

Recording Employer Payroll Taxes

Payroll Tax Expense 2,443.82

Companies must report FICA taxes and federal income taxes

Companies generally file and remit federal unemployment

Employers must provide each employee with a Wage and Tax

You might also like