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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

CHAPTER 3:CHAPTER 3: CALCULATING AND RECORDING CALCULATING AND RECORDING DEPARTMENTAL PAYROLL DATADEPARTMENTAL PAYROLL DATA

Define accounting terms related to a departmental payroll system

Identify accounting concepts and practices related to a departmental payroll system

Prepare a commission record and calculate commission on net sales

Complete payroll records Journalize payroll transactions

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 3-1LESSON 3-1

Completing Payroll Records for Employee Earnings and Deductions

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

SALARY: money paid for servicesSALARY: money paid for services

Pay period: period covered by salary pymt Payroll: total amount earned by all employees for pay period Payroll taxes: taxes based on payroll Employers must pay gov agencies all taxes withheld from

salaries + employer payroll taxes Must provide Form W-2: given to employees by Jan 31 Must keep records showing:

Each employee’s earnings Amounts withheld Net amount paid Total amount of payroll taxes that business must pay

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

PAYROLL DEDUCTIONSPAYROLL DEDUCTIONS

Federal income tax Determined by: total earnings, marital status, number of

withholding allowances claimed by employee Withholding allowance: deduction from total earnings for each

person legally supported by taxpayer

State Income tax – 5% (for Zytech) PA = 3.07%

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

2. Find the column with the correct number of withholding allowances.

1. Locate the range containing the total earnings.

3. Find the intersection of the row and column.

USING THE FEDERAL INCOME TAX USING THE FEDERAL INCOME TAX WITHHOLDING TABLEWITHHOLDING TABLE page 66

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

PAYROLL DEDUCTIONS: PAYROLL DEDUCTIONS:

FICA taxes – Federal Insurance Contributions Act System for old-age survivors, disability, and hospital

insurance Tax base: Max amount of earnings on which a tax is

calculated Social Security

6.2% up to max of $87,000 per calendar yearmatched by employer

Medicare:1.45%; no tax basematched by employer

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

PAYROLL DEDUCTIONSPAYROLL DEDUCTIONS

Other deductions: City/State deductionsHealth insuranceLife insurancePension plansSavings depositsUS Savings bondsUnited Way donations

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

PAYROLL DEDUCTIONSPAYROLL DEDUCTIONS page 61

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

Regular Hours Regular Rate Regular Earnings

CALCULATING EMPLOYEE EARNINGSCALCULATING EMPLOYEE EARNINGS

80 $7.00 per hour $560.00

Overtime Earnings=Overtime Hours Regular Rate 1.5 = $52.505 $7.00 1.5

RegularEarnings

OvertimeEarnings

TotalEarnings

$560.00 $52.50 $612.50

page 62

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

SALARYSALARY

Basic Salary may be supplemented by: Commissions Cost of living Share of profit Bonus

Store Manager: paid regular biweekly salary, no OT Annual bonus

Supervisors: paid regular biweekly salary, no OT 1% commission on dept monthly sales

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

1. Record heading information.

3. Calculate commission on net sales.

COMMISSIONS RECORD – PAGE 63COMMISSIONS RECORD – PAGE 63 page 63

2. Obtain amounts and calculate totals.

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Sales Journal

Cash Receipts

General Journal

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

9. Totals8. Net pay

PREPARING A PAYROLL REGISTER- PREPARING A PAYROLL REGISTER- form used to record payroll infoform used to record payroll info pages 64-65

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66 77 88

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2. Date of payment3. Employee information4. Hours and earnings5. Total earnings/salary by

department6. Payroll deductions7. Total deductions

1. Heading

99

99

Federal- tax tables; State – 5%

Soc Sec – total * 6.2%; Med – total *1.45%

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

3. Record beginning accumulated earnings (year to date/ tax base)

1. Write last day of quarter.

4. Write ending day of pay period.

2. Enter heading information.

5. Enter total earnings, deductions, and net pay.

6. Calculate and record accumulated earnings.

PREPARING AN EMPLOYEE EARNINGS PREPARING AN EMPLOYEE EARNINGS RECORD – used to record details affecting RECORD – used to record details affecting payments made to an employeepayments made to an employee page 67

1122

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44 55 66

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

TERMS REVIEWTERMS REVIEW

salary pay period payroll payroll taxes withholding allowance tax base payroll register employee earnings record

TO DO: Audit, 68 Work Together, 68 On your own, 69 App 3-1, 3-2, 3-3

page 68

CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 3-2LESSON 3-2

Recording a Payroll and Payroll Taxes

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

Payroll Bank Account: Payroll Bank Account:

Use special account and special checks for payroll After biweekly register is complete check is written

on general checking account payable to Payroll for TOTAL NET pay Deposited in special account payroll checks are then

written against this account Reduced to 0 once all checks have been deposited/cashed No special account needed in general ledger

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

Automatic Check DepositAutomatic Check Deposit

Depositing payroll checks directly to specific bank and account Send check to bank

EFT – Electronic Funds Transfer Computerized cash payments directly to bank account Eliminates need for preparing checks Each employee receives statement of earnings and

deductions

NEITHER change the accounting procedures for recording payroll

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

1. Write the date.

2. Record the salary expense accounts.

3. Enter the check number.

4. Write the salary expense amounts.

5. Enter the liability accounts.

6. Record the liability amounts.

7. Write the net pay.

JOURNALIZING PAYMENT JOURNALIZING PAYMENT OF A PAYROLLOF A PAYROLL page 71

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66

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

Unemployment TaxesUnemployment Taxes

PAID BY EMPLOYER ONLY! Federal Unemployment 6.2% State deductible – 5.4%

EFFECTIVE RATES: (on first $7000 earned) Federal: 0.8% States: 5.4%

************************************************************ Report earnings by dept Payroll taxes expense reported by department

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

Audio Department Payroll Taxes Expense

CALCULATING EMPLOYER CALCULATING EMPLOYER PAYROLL TAXESPAYROLL TAXES page 72

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

1. Write the date.

3. Write the source document.

4. Record the amount of payroll taxes.

2. Write expense account titles.

6. Enter the liability amounts.

5. Write the liability account titles.

JOURNALIZING EMPLOYER JOURNALIZING EMPLOYER PAYROLL TAXES (transactions – pg 73)PAYROLL TAXES (transactions – pg 73) page 73

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

JOURNALIZING PAYMENT OF FEDERAL INCOME JOURNALIZING PAYMENT OF FEDERAL INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX LIABILITYTAX LIABILITY

Frequency of pymt to fed, state, local gov depends on amount owed each year

If total amount paid in previous 4 quarters is <$50,000 monthly schedule depositor (Zytech) must pay total amount due by 15th day of following month w/Form 8190

Federal Tax Deposit Coupon If total amount paid is >$50,000

semiweekly schedule depositor Must deposit within following week

If >$200,000 must deposit directly to IRS EFTPS: Electronic Federal Tax Payment System

TWO EXCEPTIONS: If less than $2500 tax liability is accumulated during 3-month quarter

deposit may be paid at end of month following end of quarter If tax liability is $100,000 or more is accumulated on any day, the amount

must be deposited the next business day

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

1. Write the date.

3. Write the check number.

5. Record the amount paid.

4. Enter the liability amounts.

2. Enter the liability accounts.

JOURNALIZING PAYMENT OF FEDERAL JOURNALIZING PAYMENT OF FEDERAL INCOME TAX, SOCIAL SECURITY TAX, AND INCOME TAX, SOCIAL SECURITY TAX, AND MEDICARE TAX LIABILITY – (PAGE 74)MEDICARE TAX LIABILITY – (PAGE 74) page 74

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

5. Record the amounts paid.

1. Write the date.

3. Write the check numbers.

4. Enter the liability amounts.

2. Enter the liability accounts.

JOURNALIZING PAYMENT OF FEDERAL JOURNALIZING PAYMENT OF FEDERAL UNEMPLOYMENT TAX LIABILITYUNEMPLOYMENT TAX LIABILITY page 75

1122 33 44 55

FEDERAL: if annual pymt >$100, must make quarterly pymts in month following each quarter

STATE: varies, but usually required to pay during month following each quarter

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CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 3-1

TERMS REVIEWTERMS REVIEW

automatic check deposit electronic funds transfer (EFT)

TO DO: Audit, 76 Work Together, 76 On your own, 76 App prob 3-4, 3-5

page 76