Payroll Accounting - Principles of Accounting

7/27/2019 Payroll Accounting - Principles of Accounting

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Payroll Accounting

Employees are paid either a wages or a salary.

The term payroll refers to the wages paid to a firms employees for acertain pay period.

The pay period is usually weekly, monthly, or semi monthly.

Records of Attendance

There are many different ways in which the attendance of employees isrecorded. Two main methods are clock cards and time sheets.

Clock cards

A mechanical device on the factory floor that records the precise hours thatthe employee works for.A clock card for each employee is placed in a rack witha time recorder clock. The employee inserts his/her card into the time recorderclock on arrival at work where it is stamped with the time. A similar pattern isfollowed when the employee leaves the work place.

Time Sheets

A record of hours worked kept by the employee himself. Those employees whowork away from the premises of the business may be required to complete atime sheet showing the hours worked each day. Sometimes the time spenttravelling to and from work is recorded separately to actual working time

Remuneration Methods

There are several ways in which wages are calculated. Two main methods ofcalculating wages are time basis and piece rate basis.

Time basis Time rate (or day rate)

The employee is paid an agreed amount for each hour worked (often up to aset number of hours) each week. Wages are calculated by multiplying the fixedrate per hour by the number of hours worked.

The standard rate per hour is called basic rate

If the hours worked exceeds a per-set maximum, OVERTIME is often paid at a higher rate, say, time and

a half, which means 1 1/2x basic rate

This Method is appropriate if the quality of the output is more important than the

quantity.

Piece rate basis

The employee is paid an agreed amount for each unit produced or each task performed. Under this

method, wages are directly related to the quantity of work produced and this is an incentive to employees

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Page 1 of 7Payroll Accounting - Principles Of Accounting

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to work more.

Differential piecework

It offers high rates as production increases.

Gross pay

The total wages which an employee has earned is known as Gross Pay

It is what an employee earns -Not what the employee receives

This includes:

Basic pay

Overtime

Bonus

Net pay

This is the final amount the employee is paid and receives either with a live paper check or a direct

deposit. It is the take home pay or or what is deposited into the bank a/c. From the gross pay figure

statutory deductions and voluntary deductions are made in order to calculate the amount of take

home pay or Net Pay.

Statutory deductions:

The deductions from an employees gross pay that are required by law

Income Tax: An employer must deduct the correct amount of income tax from the gross pay of each

employee. This must be forwarded to the appropriate government department at regular intervals (often

monthly).

Social Security:

The employer must calculate and deduct social security / national insurance contributions

(NIC) from the gross pay of each employee. Such deductions allow employees to benefit from services

provided by the government such as unemployment benefits, health benefits, and retirement benefits. In

addition to the contribution by the employee, a larger contribution is also made by the employer. The

total of these contributions must be forwarded by the employer to appropriate government department at

regular intervals (often monthly or quarterly).

Non-Statutory deductions

Voluntary deductions are deductions which an employee chooses to have deducted from his/her gross

wages.

Voluntary deductions or non-statutory deductions include the following:

Pay Slip

When an employee is paid, the employer provide a pay slip which shows the gross pay and net pay and

gives details of the various deductions

A pay slip includes

Payroll register

The employer keeps these details of each employee and this is known as a payroll register.

Book keeping entries for Payroll

After the wages have been calculated and payroll register is completed, entries are made in the books.The simplified bookkeeping entries involve an expense account for salaries and wages and accounts for

each of the main types of statutory and voluntary deductions.

An employer often has to forward amounts deducted from employees wages to the appropriate

government department or organization at monthly intervals. Until these amounts are paid, the accounts

will have credit balances as they are liabilities of the business.

Entry #1: To record employees withholdings and employers contribution.

a pension scheme

Contribution to Subscriptions to trade unions

Subscriptions to social clubs

Donations to charities

Pension contributions

An employees gross pay

Deductions from gross pay and

Net pay


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Entry #2: To record the remittance of payroll withholdings and employers contribution.

Payroll Accounting Procedure

1. Answer the following

a) What details should a pay slip show by law?

b) What is a clock card?

c) What is the formula to calculate wage on time rate?

d) What information should a payroll register include

e) For what kind of jobs is piece work method more suitable?

f) Give two examples of statutory deductions?

g) Name two Non-statutory deductions

2. Multiple Choice questions

Underline the correct answer

a) Sara has a working week of 40 hours for which she is paid $10 per hour.

For hours worked in excess of this she is paid 1 times the basic rate.

Sara worked a total of 50 hours in the 1st week of July.

What is Saras gross pay for this week?

A $400

B $500

C $525

D $625

b) Shathira works 50 hours a week for which she is paid $10 per hour.

For hours worked in excess of this she is paid 1 times the basic rate.

Shathira worked a total of 55 hours in the 1st week of February.

What is Shathiras basic pay for this week?

A $425

B $500

C $550

D $575

c) A business pays a weekly government tax of 10% on the total weekly wages to employees.

For the week of 30April the total paid to employees amounted to $5000

Which entries will record the payment on 30 April?


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3. Calculate the Gross pay

a) Suppose Shazna work for $8.25 per hour. She works 40 hours during the week. What is her gross

pay at the end of the week?

b) Nizam works in a laundary service he is paid $1.5 for each peice he wash. Calculate his wage for a

month if he washes 150 pieces during the month?

c) Naruto works a regular work week of 40 hours for $3.50 an hour, plus one hour overtime each day.

Overtime is paid 1 basic rate. What is his gross pay?

4. Hamdha has been in business for a year.

She had one employee.

The employee was paid for 120 hours at $5 per hour, and six hours overtime at time and a half.

$136 was deducted from pay for tax and social security.

Hamdha must pay $45 employers contribution to social security.

The total tax and social security is due to be paid to the tax authorities on 19 August.

Required

a) Prepare journal entries for wages and social security contributions for July 2009.

Narratives are not required. (Show your calculations.

5. Shameem is a trader. He employs two part-time staff. Each work 50 weeks a year. One is employed

for 25 hours a week at $6 per hour. The other works 30 hours each week at $8 per hour

(a) i) Calculate the total wages Shameem pays the part-time staff during the year

ii) One additional cost Shameem would incur

Both employees have asked for a 10% increase in pay. Shameem can use the information in his final

accounts when considering this request

(b) Explain three different ways in which the final accounts can help Shameem to decide about the

pay rise

6. CROSSWORD PUZZLE

Across

Wages account Government tax account Bank statement

Debit

$

Credit

$

Debit

$

Credit

$

Debit

$

Credit

$

A 4500 500 5000

B 5000 500 5500

C 4500 500 5000

D 5000 500 5500


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Down

Worksheet on payroll accounting

Problems based upon time rate

Qus.1. Wage rate per hour- $2

Javed works for six hours and prepared 100 units.

Anwar works for seven hours and prepared 90 units.

Calculate the earning of Javed and Anwar for the day as per time rate.

Qus.2. Calculate monthly wages due to Abdulla and Hameed as per the following data-

Working hour in a day- 7

Daily wages - $6

Working day in a month- 28

Abdulla was absent for two days and Hameed for five days during the month.

Problems based upon piece rate

Qus.3. Calculate the wages of Iqbal and Ali from the data given below based on piece

rate work-Wages per chair $1.2

Number of chairs made by Iqbal in a day 12

Number of chairs made by Ali in a day - 14

Calculate monthly wages received by Iqbal and Ali if there are twenty six working

days in a month.

Qus.4.Calculate total monthly remuneration of three workers Mariyam, Fathima and

Aysha from the following data.

Actual production during the month.

Mariyam 1700 units

Fathima 1500 units

Aysha 1900 units

Piece work rate is $ 2 per unit.

Qus.5. Following is the detail of packets prepared during the week by Amit and

Sumit:

Amit Sumit

Saturday 10 12

Sunday 11 14

Monday 09 06

1. . pay is rate for the job, and is what you expect to receive for the normal periods work

2. Statutory deductions means the deductions from employees pay that are required by ..

3. Hours in excess of over and above the agreed basic hours for the period.

4. The additional percent that employers pay when employees work over and above the agreed basic

hours for the period is known as the overtime

5. .. wages is the amount an employee earns before deduction is made for payroll taxes and

other items.

6. (Wages = Hours Worked Basic rate of pay per hour) is the formula to calculate

7. states the gross pay and deductions from the gross pay.

8. Employers take home pay is pay

1. Payment for labour or services to a worker, especially remuneration on an hourly, daily, or weekly

basis or by the piece.

2. . Tax is an example of PAYE (Pay As You Earn)

3. A record of hours worked kept by the employees.

4. A non statutory deduction.

5. An amount is paid for each unit or task successfully completed, acting an INCENTIVE to produce

more.

6. Fixed compensation for services, paid to a person on a regular basis.


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Tuesday 10

Wednesday 07 09

Thursday 08

If the rate of wages is $2.5 per packet calculate weekly wages for Amit and Sumit.

Problem based on both piece rate and time rate

Qus.6. Following data supplied to you for the calculation of wages:-

Daily working hours in the factory8 hours

Wages per hour $1.2

Wages per piece -$0.80

Production of X and Y during the week in units are:-

X Y

Saturday 15 18

Sunday 16 15

Monday 12 16

Tuesday 14 10

Wednesday 10 12

Thursday 11 14

Friday is holiday. Calculate weekly wages as per piece rate and time rate and find out the difference in

wages.

Qus.7.In an assembly shop of motor cycle factory 4 workmen A, B, C and D work

together as a team and are paid on group piece rate. They also work

individually on day rate jobs. In a 44 hour week, the following hours have

been spent by A, B, C and D on group piece work Viz. A 40 hours, B 40

hours, C 30 hours and D 20 hours. The balance of time has been booked by

each worker on day work jobs. Their hourly rates are:

A $ 0.50

B $ 0.75

C $ 1.00

D $ 1.00

The group piece rate is $ 1.00 per unit and the team has produced 150 units. Calculate the gross weekly

earnings of each workmen taking in to consideration that each individual is entitled to Dearness allowance

of $ 20 per week.

Problem based on over time

Qus.8.Calculate the normal and overtime wage payable toYounas from the

following data.

Days Hours worked

Saturday 9

Sunday 4

Monday 8

Tuesday 10

Wednesday 9

Thursday 11

Normal working hours 8 per day

Normal rate is $ 1 per hour.

Over time rate :- Up to 9 hours in a day at single rate and over 9 hours at double rate.

Qus.9. Calculate wage due to Naeem concerning who the following data

applied.

Normal working hours in a week 44 hours.


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7/7

Actual booked hours 50 hours.

Rate per hour: Normal $1.25

Problems based upon gross salary and net salary

Qes.10. Following is the particular of wages for Murad during the year:-

Basic Pay $ 25000

Bonus 1/5 of basic pay

Income tax deduction 10%

Calculate gross and net salary of Murad.

Ques.11. Robert is a employee of Nestle limited. He worked 250 hours during the

month. Wages are $2.5 per hours.

Following are the deductions from his salary-

(i) Income tax-5% of gross salary

(ii) Insurance-$13

(iii) Co-operative society-$10

(iv) Pension Fund contribution-12% of gross salary

Calculate the net amount received by the Robert for the month.

Incoming search terms:

payroll accounting entries

payroll gross accounting entry payroll wages paid accounting entry

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Documents

Payroll Accounting - Principles of Accounting