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Unit 11Unit 11

Accounting for Payroll Accounting for Payroll

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Accounting Records for Payroll

• Chart of accounts:– is a listing of all the general ledger accounts used by a

business – serves as a guide for the recording of transactions.– represent assets, liabilities, and expense items.

• Assets: – are things of value owned by a business: – cash, bank accounts, office furniture, buildings, delivery vans, furniture,

merchandise on hand. • Liabilities are debts or loans,• Expenses are the costs of operating the business

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Accounting Records for Payroll

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Accounting Records for Payroll

• Most accounting systems are built around two basic types of records: – Journals:

• is a (day-by-day) listing of transactions

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Accounting Records for Payroll

• Ledgers: • ledger is a group of accounts• each account shows everything-that happened over a

period of time

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Assets

Liabilities

Expenses

Amounts that are owed

Things of value owned by a business

Costs of operating the business

Accounting Records for Payroll

•Double entry accounting system: at least two accounts are affected by each transaction.

•To ensure that the accounting records are kept up-to-date, the journal entries and posting to the ledger are made as soon as possible after the transactions occur.

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Understanding the Ledger Accounts

• Salaries Wages and Expenses: ― Payroll causes an

increase in the operating expenses of a business.

― the salaries and wages expense account must be debited for the total gross earnings of the employees.

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Understanding the Ledger Accounts

• Salaries and Wages Payable:– are a liability of the

company. ―is increased by the

amount of net pay earned by the employees.

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Understanding the Ledger Accounts

Deductions: • difference between

Salaries and Wages Expense account and Salaries and Wages Payable

• deductions will increase the liabilities

Each payable accountCredit eachaccount for amountof tax withheld

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Understanding the Ledger Accounts

• Deductions: – Employee Federal Income

Taxes Payable– State Disability Insurance

Taxes Payable– Social Security Taxes Payable– Medicare Taxes Payable– Employee State Income Taxes

Payable– IRA Contributions Payable– Savings Bonds Payable

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Payroll Journal Entry

The journal entry to record payroll for week ending January 17, 2005 is:

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Payroll Payment Journal Entry

Cash Account

Credit for amount equal to net pay

Wages & Salaries Payable

Debit for amount ofnet pay

• Disbursement (payment) journal entry:– On Payday:

• liability account, (Salaries and Wages Payable) must be debited

• Cash account must be credited for the net pay amount

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Payroll Payment Journal Entry

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Payroll Taxes Expense

Debit for total amount of employer’s payroll taxes.

Each Liability AccountCredit each account for the individual tax amounts.

Recording the Employer’s Payroll Taxes

• Employer’s payroll taxes: – Employer’s Social Security Contribution– Employer’s Medicare Contribution, – Federal ( FUTA) and State (SUTA) unemployment taxes.

• These items cause:– an increase in operating expenses – and an increase in liabilities until the sums are remitted to the correct

government agencies.

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Recording the Employer’s Payroll Taxes

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Cash Each Liability Account

Credit for amount being paid.

Debit foramount being depositedto government agencies.

• Payment/deposit of the payroll taxes:– each liability account must be debited – cash credited for the amount of tax being

deposited to the correct government agency.

Depositing the Taxes Withheld

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Depositing the Taxes Withheld

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Unit Summary

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Questions?