CHAPTER 6 ANALYZING & JOURNALIZING

PAYROLL TRANSACTIONS

Payroll Accounting 2013 Bernard J. Bieg and Judith A. Toland

Developed by Lisa Swallow, CPA CMA MS

Learning Objectives

• Record payrolls in appropriate records• Understand various deductions taken from

employees’ gross pay• Journalize entries to record payroll and payroll

taxes• Post to general ledger• Explain recording of payroll tax deposits• Understand need for end-of-period

adjustments

Accounting for Payroll Transactions

Payroll requires entering data (in order) in the following places

• Payroll Register• Employee Earnings Records• General Journal

• Journalize gross wages and withholdings• Journalize payroll taxes and workers’ compensation• Journalize period-end accruals

• Post to General Ledger

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Recording Gross Payroll & Withholdings

Enter information into accounting system

• Gross payroll is debited• Each withholding tax is credited to a

liability• All other payroll deductions are

liabilities as well

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Methods of Paying Wages & Salaries• Check

• Sometimes separate payroll account maintained to make bank reconciliation process easier

• Electronic payment methods• EFTS (electronic funds transfer system)

• Electronic records created showing bank, account # and net pay

• Pay cards allow employer to deposit payroll into prepaid card• Card utilized like debit or credit card

• Many employees who do not have bank accounts use these

• Electronic paystubs alleviate need for paper paystubs

• Final pay• Many states set time limit between termination and final wage

pay out (depends upon whether worker left voluntarily)

• CA and MI require immediate payment if employee is firedLO-3

Journal Entries to Record Payroll

• Journal Entry #1 - Record gross wages, withholdings and net pay

• Journal Entry #2 - Record employer’s payroll tax expense

These two journal entries are always the same

in format. You must make both of them every time

you issue any paycheck (even if cutting a check

for one day’s wages, for example).

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Journal Entry #1

• Debit Wage Expense for gross payroll• Credit each withholding account - they are all liabilities• Credit cash (or wages payable) for net payroll

Gross OASDI HI FIT SIT Insurance Net1,000.00 42.00 14.50 83.00 21.00 103.00 736.50

845.00 35.49 12.25 91.00 29.00 88.00 589.26 1,845.00$ 77.49$ 26.75$ 174.00$ 50.00$ 191.00$ 1,325.76$

Journal entry #1Wage Expense 1,845.00

FICA Taxes Payable - OASDI 77.49

FICA Taxes Payable - HI 26.75

Employees FIT Payable 174.00

SIT Payable 50.00

Group Insurance Payments W/H 191.00

Cash 1,325.76

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Journal Entry #2• Debit Payroll Tax Expense for total of all payroll taxes that

employer pays • Credit each account - they are all liabilitiesEE Gross FUTA Wages SUTA Wages OASDI Wages HI Wages

A 1,000.00 - 800.00 1,000.00 1,000.00

B 845.00 615.00 845.00 845.00 845.00

Total 1,845.00$ 615.00$ 1,645.00$ 1,845.00$ 1,845.00$

Tax 3.69$ 46.06$ 114.39$ 26.75$

Calculate all employer taxes utilizing varying wage bases and percentages

Journal entry #2

Payroll Tax Expense 190.89FUTA Taxes Payable 3.69SUTA Taxes Payable 46.06FICA Taxes Payable - OASDI 114.39FICA Taxes Payable - HI 26.75 LO-3

Recording Deposit of Payroll Taxes

Look in general ledger for amounts due

• Deposit 941 taxes

• Deposit SIT

• Deposit SUTA

191.8853.50

174.00 Cash 419.38

FICA Taxes Payable - HIEmployee FIT Payable

FICA Taxes Payable - OASDI

SUTA Taxes Payable Cash

46.0646.06

SIT Payable Cash

50.0050.00

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Workers’ Compensation Insurance

• Workers’ compensation is an expense for the employer, who is required to purchase insurance to protect employees against work related injuries/disabilities • Laws differ by state• Premiums often calculated based on

employment classification – stated in terms of $100 per payroll

• Pay premiums in advance based on projected wages

• Then, at year-end, report actual wages and pay additional premium or may receive credit towards next year

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