Heintz & Parry. 20 th Edition. College Accounting

Transcription

1 Heintz & Parry 20 th Edition College Accounting

2 Chapter 8 Payroll Accounting: Employee Earnings and Deductions

3 1 Distinguish between employees and independent contractors.

4 Payroll costs are major expenditures for most businesses Records provide data for analyzing and controlling these expenditures Laws require records to be kept For the business as a whole For each employee

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6 Work under the control and direction of an employer Examples: Secretaries Sales Clerks Plant Supervisors Maintenance Workers

7 Perform services for a fee and do not work under the control and direction of the company paying for the services Examples Lawyers Public Accountants Real Estate Agents

8 Employees involve: More laws and regulations Taxes that must be deducted Payroll records to maintain Numerous reports to file Only one form must be filed for independent contractors Form 1099

9 2 Calculate employee earnings and deductions.

10 Salaries Compensation for managerial or administrative services Expressed in biweekly, monthly, or annual terms Wages Compensation for skilled and unskilled labor Expressed in terms of hours, weeks, or units produced

11 Fair Labor Standards Act (FLSA) Requires employers to pay overtime (1½ times the regular rate) to any hourly employee who works over 40 hours in a week Some salaried employees are exempt from the FLSA rules

12 When compensation is based on time, a record must be kept of the time worked by each employee Examples: Time cards, plastic cards or badges with special magnetic strip barcodes The hours worked are multiplied by the rate of pay to determine total earnings

13 EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday. 40 hours $12 per hour = $ hours $18 per hour = $198 $12 1½ = $18 overtime rate

14 EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday. 40 hours $12 per hour = 11 hours $18 per hour = 4 hours $24 per hour = $ Sunday hours, twice the regular rate ($12 2 = $24 Sunday rate)

15 EXAMPLE: Helen Kuzmik worked 55 hours this week. Kuzmik s regular rate of pay is $12 per hour. She is paid 1½ times the regular rate for hours in excess of 8 on Monday through Friday and any hours worked on Saturday, and twice the regular rate for hours on Sunday. Helen worked 4 hours on Sunday. 40 hours $12 per hour = 11 hours $18 per hour = 4 hours $24 per hour = $ Total earnings for the week $774 Also called gross pay.

16 EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. In order to compute her overtime rate, we must determine her regular hourly rate.

17 EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #1 Determine her annual salary. $2,288 per month 12 months = $27,456 annual pay

18 EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #2 Determine her weekly salary. $27,456 annual salary 52 weeks = $ pay per week

19 EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #3 Compute regular hourly pay. $528 per week 40 hours per week = $13.20 pay per regular hour

20 EXAMPLE: Linda Swaney has a salary of $2,288 a month plus 1½ times the regular hourly rate for hours in excess of 40 per week. Step #4 Compute overtime rate. $13.20 per hour 1½ = $19.80 overtime pay per hour

21 Three categories: Federal (and possibly state and city) income tax withholding Employee FICA tax withholding Voluntary deductions Gross pay Deductions = Net pay Also called take-home pay

22 Required by federal law Applied toward the payment of the employee s federal income tax Amount withheld determined by: Total earnings Marital status Number of withholding allowances claimed Length of the pay period

23 Exempt a specific dollar amount of an employee s gross pay from federal income tax withholding Computed on Form W-4 Employee s Withholding Allowance Certificate Based on the marital status and the number of allowances claimed In general, each employee is permitted one personal withholding allowance, one for a spouse who does not also claim an allowance, and one for each dependent

24 EXAMPLE: Ken Istone, who is married and claims 6 allowances, has gross earnings of $545 for the week ending December 19, Determine the amount of federal income tax to be withheld using the wage-bracket method.

25 If the wages are At least But less than $ 390 $ And the # of withholding allowances claimed is The amount of income tax to be withheld is Step #1 Find the row for wages of at least $540, but less than $ Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

26 If the wages are At least But less than $ 390 $ Step #2 Find the column headed 6 withholding allowances. And the # of withholding allowances claimed is The amount of income tax to be withheld is Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

27 If the wages are At least But less than $ 390 $ And the # of withholding allowances claimed is The amount of income tax to be withheld is Step #3 Find the amount where they cross. This is the amount to be withheld Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

28 Includes amounts for: Social Security Provides pension and disability benefits Medicare Provides health insurance Required by the Federal Insurance Contributions Act (FICA)

29 Tax rates are set by Congress Social Security 6.2% on maximum earnings of $106,800 Medicare 1.45% on ALL earnings; there is no maximum Rates can be changed annually by Congress

30 EXAMPLE: Sarah Cadrain had earnings of $1,600 for the December 6 12 pay period, bringing her earnings year-to-date to $105,540. Sarah s earnings have not yet reached the maximum of $106,800. ALL of her earnings for this week are subject to Social Security and Medicare tax.

31 $1,600 EXAMPLE: Sarah Cadrain had earnings of $1,600 for the December 6 12 pay period, bringing her earnings year-to-date to $105,540. Gross Pay Tax Rate = Tax Social Security 6.2% Medicare 1.45% $ $122.40

32 EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Year-to-date earnings Social Security maximum $107, , Amount not subject to S.S. tax $

33 EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Gross pay $1, Amount not subject to S.S. tax Amount subject to S.S. tax $ 1, Tax rate 6.2% Social Security tax $ 78.12

34 EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Gross pay $1, Since Medicare has no maximum earnings, all of Cadrain s gross pay is subject to the Medicare tax.

35 EXAMPLE: The following week Cadrain earns $1,660, bringing her earnings year-to-date to $107,200 (over the Social Security maximum). Gross pay $1, Tax rate 1.45% Medicare tax $ Sarah s total FICA tax is $ ($78.12 S.S. + $24.07 Med.)

36 Deductions that are optional and depend on specific agreements between the employee and employer Examples: U.S. savings bond purchases Health insurance premiums Credit union deposits Pension plan payments Charitable contributions

37 EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay $ Deductions: Federal income tax withholding $ 1.00 From the wage bracket withholding tables

38 EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay $ Deductions: Federal income tax withholding $ 1.00 Social Security tax withholding All his pay is subject to S.S. tax ($ %)

39 EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay Deductions: Federal income tax withholding $ 1.00 Social Security tax withholding Medicare tax withholding 7.90 $545.00

40 EXAMPLE: Compute the net pay of Ken Istone for the week ended December 19. His health insurance premiums are $10 per week. Gross pay Deductions: Federal income tax withholding $ 1.00 Social Security tax withholding Medicare tax withholding 7.90 Health insurance premiums $ Total deductions Net pay $492.31

41 3 Describe and prepare payroll records.

42 Should provide the following information on each employee Name, address, occupation, social security number, marital status, and number of withholding allowances Gross amount of earnings, date of payment, period covered by each payroll Gross amount of earnings accumulated for the year Amounts of taxes and other items withheld

43 Three types: PAYROLL REGISTER PAYROLL CHECK with earnings statement EMPLOYEE EARNINGS RECORD

44 NAME # MARITAL ALLOW. STATUS REGULAR EARNINGS OVER- TOTAL TIME A payroll register is a form used to assemble the data required at the end of each payroll period.

45 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME Since marital status and number of allowances are used to compute withholding taxes, they are recorded on the payroll register.

46 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Earnings for this period are shown, categorized by regular and overtime earnings.

47 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, This pay period has taken Cadrain s earnings above the Social Security maximum. As computed earlier, only $1,260 of this period s earnings is subject to the Social Security tax.

48 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY All deductions from total earnings are listed.

49 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO , Deductions are totaled and subtracted from total earnings to arrive at net pay.

50 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S The payroll information for the other employees is recorded in the same manner.

51 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, ,

52 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

53 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

54 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M

55 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , ,

56 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

57 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

58 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M Kuzmik, Helen 2 M

59 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , , ,

60 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

61 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

62 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M Kuzmik, Helen 2 M Lee, Hoseoup 3 M

63 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , , , ,

64 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

65 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

66 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M Kuzmik, Helen 2 M Lee, Hoseoup 3 M Swaney, Linda 2 S

67 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , , , , ,

68 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

69 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

70 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M Kuzmik, Helen 2 M Lee, Hoseoup 3 M Swaney, Linda 2 S Tucci, Paul 5 M

71 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , , , , , ,

72 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

73 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

74 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M Kuzmik, Helen 2 M Lee, Hoseoup 3 M Swaney, Linda 2 S Tucci, Paul 5 M Wiles, Harry 1 S

75 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , , , , , , ,

76 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

77 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO ,

78 NAME # MARITAL ALLOW. STATUS Cadrain, Sarah 4 M REGULAR EARNINGS OVER- TOTAL TIME 1, , Guder, James 1 S Istone, Ken 6 M Kuzmik, Helen 2 M Lee, Hoseoup 3 M Swaney, Linda 2 S Tucci, Paul 5 M Wiles, Harry 1 S , ,835.00

79 EARNINGS TOTAL CUMULATIVE TOTAL 1, , TAXABLE EARNINGS UNEMPLOYMENT COMP. SOCIAL SECURITY 1, , , , , , , , , , ,435.00

80 FEDERAL INCOME TAX SOC. SEC. TAX MEDICARE TAX HEALTH INSURANCE UNITED WAY

81 HEALTH INSURANCE DEDUCTIONS UNITED WAY TOTAL NET PAY CHECK NO , ,839.42

82 Employees may be paid in cash or by check The employer furnishes an earnings statement to each employee along with his or her paycheck In many cases, payment is made by direct deposit or electronic funds transfer (EFT) by the employer to the employee s bank Payment by check or direct deposit provides better internal accounting control than payment by cash

83 PERIOD ENDED 12/5 12/12 REGULAR 11/ EARNINGS OVERTIME TOTAL A separate earnings record is maintained for each employee. CUMULATIVE TOTAL GENDER DEPARTMENT OCCUPATION SOCIAL SECURITY # M F Maintenance Service , , ,480.00

84 PERIOD ENDED 12/12 REGULAR EARNINGS OVERTIME TOTAL 11/ / Let s record the last entry of the year for Ken Istone CUMULATIVE TOTAL 25, , , GENDER DEPARTMENT OCCUPATION SOCIAL SECURITY # M F Maintenance Service

85 PERIOD ENDED REGULAR 11/ /5 12/ EARNINGS OVERTIME TOTAL CUMULATIVE TOTAL 25, , , / , GENDER DEPARTMENT OCCUPATION SOCIAL SECURITY # M F Earnings for this period are recorded and the cumulative earnings are updated. Maintenance Service

86 TAXABLE EARNINGS UNEMPLOYMENT SOCIAL COMPENSATION SECURITY DEDUCTIONS FEDERAL INCOME TAX MARITAL STATUS ALLOWANCES PAY RATE SOCIAL SECURITY TAX M Deductions are noted. $545/week

87 DEDUCTIONS MEDICARE HEALTH TAX INSURANCE UNITED WAY OTHER DATE OF BIRTH DATE HIRED NAME/ADDRESS Ken M. Istone 8/17/64 1/3/ Swallow Drive St. Louis, MO

88 DEDUCTIONS OTHER TOTAL CHECK # NAME/ADDRESS Ken M. Istone 1546 Swallow Drive St. Louis, MO AMOUNT EMPLOYEE NUMBER Deductions are totaled and net pay is recorded, along with the paycheck s number.

89 4 Account for employee earnings and deductions.

90 DATE DESCRIPTION PR DEBIT CREDIT Journal entries are now made to record the payroll expenses and liabilities Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

91 DATE DESCRIPTION PR DEBIT CREDIT The payroll register is the source for the journal entry Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

92 DATE DESCRIPTION PR DEBIT CREDIT Dec. 19 Wages and Salaries Expense 5, Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

93 DATE DESCRIPTION PR DEBIT CREDIT Dec. 19 Wages and Salaries Expense 5, Employee Income Tax Pay. Social Security Tax Payable Medicare Tax Payable Health Ins. Prem. Payable United Way Contrib. Pay. Each deduction is recorded in a separate liability account Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

94 DATE DESCRIPTION PR DEBIT CREDIT Dec. 19 Wages and Salaries Expense 5, Employee Income Tax Pay Social Security Tax Payable Medicare Tax Payable Health Ins. Prem. Payable United Way Contrib. Pay Cash 4, Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

95 WAGES AND SALARIES EXPENSE DEBIT CREDIT Debit gross pay of employees for each pay period.

96 EMPLOYEE INCOME TAX PAYABLE DEBIT CREDIT Credited when federal income tax is withheld from employees.

97 EMPLOYEE INCOME TAX PAYABLE DEBIT CREDIT Debited when withheld taxes are paid to the IRS.

98 SOCIAL SECURITY TAX PAYABLE DEBIT CREDIT Both the employer and employee pay Social Security taxes.

99 SOCIAL SECURITY TAX PAYABLE DEBIT CREDIT Credited when taxes are withheld from employees earnings.

100 SOCIAL SECURITY TAX PAYABLE DEBIT CREDIT Also credited for taxes imposed on the employer.

101 SOCIAL SECURITY TAX PAYABLE DEBIT CREDIT Debited when taxes are paid.

102 MEDICARE TAX PAYABLE DEBIT CREDIT WORKS EXACTLY THE SAME AS SOCIAL SECURITY TAX PAYABLE

103 5 Describe various payroll record-keeping methods.

104 Manual system: The same information is recorded several times Can be very inefficient Payroll processing center: A business that sells payroll record-keeping services Electronic system: A computer system that performs all payroll record keeping and prepares payroll checks

105 INPUT PROCESSING OUTPUT EMPLOYEE: SOCIAL SECURITY # HOURS WORKED Only the employee s social security number and hours worked are input each pay period.

106 INPUT PROCESSING OUTPUT EMPLOYEE: Payroll Register SOCIAL SECURITY # HOURS WORKED COMPUTER Paychecks Employee Earnings Record