CHAPTER TWENTY SIX PAYROLL PROCEDURES 3 PAYROLL PROCEDURES

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CHAPTER TWENTY SIX PAYROLL PROCEDURES

CHAPTER TWENTY SIX PAYROLL PROCEDURES

3 PAYROLL PROCEDURES Chapter Outcomes: 1. Compute gross earnings using different pay plans. 2.

3 PAYROLL PROCEDURES Chapter Outcomes: 1. Compute gross earnings using different pay plans. 2. Read a time card and compute regular hours and overtime hours. 3. Compute deductions and net pay. 4. Prepare a payroll register and employee earnings record. 5. Journalize the payroll and payroll taxes. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

4 Pay Plans Salary Plan Hourly-Rate Plan Piece-Rate Plan Commission Plan Mc. Graw-Hill/Irwin Accounting

4 Pay Plans Salary Plan Hourly-Rate Plan Piece-Rate Plan Commission Plan Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

5 Computing Gross Earnings Gross earnings may include both regular earnings and overtime earnings.

5 Computing Gross Earnings Gross earnings may include both regular earnings and overtime earnings. When an employee works over 40 hours, overtime must be paid at a rate of at least 1. 5 times the regular rate. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

6 Computing Gross Earnings (continued) Regular hours are multiplied by the hourly rate. Hours

6 Computing Gross Earnings (continued) Regular hours are multiplied by the hourly rate. Hours x rate = pay Overtime hours worked are multiplied by the overtime rate. Hours x rate = OT Regular earnings and overtime earnings are added together to calculate gross pay. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

7 Determining Employee Deductions Federal Income Tax Withholding Social Security Tax (FICA) Medicare Tax

7 Determining Employee Deductions Federal Income Tax Withholding Social Security Tax (FICA) Medicare Tax Other Deductions Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

8 Computing Net Pay Gross Earnings - Deductions = Net Pay Mc. Graw-Hill/Irwin Accounting

8 Computing Net Pay Gross Earnings - Deductions = Net Pay Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

9 Preparing Payroll Records Many businesses use a payroll register to record the pay

9 Preparing Payroll Records Many businesses use a payroll register to record the pay to employees. A payroll register includes the information about the employee and his/her earnings--marital status, withholding allowance, hours worked, earnings, deductions, net pay, and check number. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

10 Paying the Employees Each employee should get a paycheck along with an explanation

10 Paying the Employees Each employee should get a paycheck along with an explanation of any deductions. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

11 Recording the Payroll In the General Journal, the transaction would look like this:

11 Recording the Payroll In the General Journal, the transaction would look like this: Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

12 Recording the Employer’s Payroll Taxes Most businesses are subject to several payroll taxes

12 Recording the Employer’s Payroll Taxes Most businesses are subject to several payroll taxes -- the employer’s social security tax, Medicare tax, federal unemployment tax, and state unemployment tax. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

13 Recording the Employer’s Payroll Taxes (continued) The General Journal entry would look like:

13 Recording the Employer’s Payroll Taxes (continued) The General Journal entry would look like: Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

14 Payroll Tax Forms A number of payroll tax forms are required by the

14 Payroll Tax Forms A number of payroll tax forms are required by the federal government. • Employers Quarterly Federal Tax Return (Form 941) • Wage and Tax Statement (Form W-2) • Transmittal of Income and Tax Statements (Form W-3) • Annual Federal Unemployment Tax Return (Form 940) • Federal Tax Deposit (Form 8109) accompanies each payment of Federal Taxes. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

15 Accounting Terminology • Direct deposit • Payroll taxes • Employee earnings record •

15 Accounting Terminology • Direct deposit • Payroll taxes • Employee earnings record • Piece-rate plan • Gross earnings • Salary plan • Hourly-rate plan • Time cards • Net pay • Time clock • Overtime • Time sheets • Pay statement • Year-to-date earnings Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e • Salary commission plan © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

16 Chapter Summary • The total amount an employee earns is known as gross

16 Chapter Summary • The total amount an employee earns is known as gross earnings. • Gross earnings may include both regular earnings and overtime earnings. • Net pay is gross earnings less deductions. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

17 Chapter Summary (continued) • The amount of federal income tax withheld for each

17 Chapter Summary (continued) • The amount of federal income tax withheld for each employee depends on gross earnings, marital status, and the number of withholding allowances. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

18 Chapter Summary (continued) • By law, businesses must keep detailed records of the

18 Chapter Summary (continued) • By law, businesses must keep detailed records of the hours worked, gross earnings, deductions, and net pay of their employees. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

19 Chapter Summary (continued) • After the payroll is computed, it must be recorded

19 Chapter Summary (continued) • After the payroll is computed, it must be recorded in the General Journal. When the employees are paid, an entry is made in the cash payments journal. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

20 Chapter Summary (continued) • Most businesses are subject to several payroll taxes --

20 Chapter Summary (continued) • Most businesses are subject to several payroll taxes -- the employer’s social security and Medicare tax, federal unemployment tax, and state unemployment tax Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

21 Chapter Summary (continued) • Businesses must prepare a number of payroll tax forms

21 Chapter Summary (continued) • Businesses must prepare a number of payroll tax forms for the federal government. Other payroll tax forms may be required by state and city tax agencies. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

22 Investigating on the Internet As a research assignment, access the IRS web site

22 Investigating on the Internet As a research assignment, access the IRS web site and report those sources of information that might concern payroll taxes. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

23 Topic Quiz Answer the following true/false questions: 1. The total amount an employee

23 Topic Quiz Answer the following true/false questions: 1. The total amount an employee earns is known as net earnings. FALSE 2. Most businesses are subject to payroll taxes. TRUE 3. Not all businesses must keep detailed records of employee pay. FALSE Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

24 1. The total amount an employee earns is known as net earnings. FALSE

24 1. The total amount an employee earns is known as net earnings. FALSE The total amount an employee earns is known as gross earnings. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e (Return to Topic Quiz) © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

25 3. Not all businesses must keep detailed records of employee pay. FALSE All

25 3. Not all businesses must keep detailed records of employee pay. FALSE All businesses must keep detailed records of employee pay. Mc. Graw-Hill/Irwin Accounting Fundamentals, 7/e (Return to Topic Quiz) © 2006 The Mc. Graw-Hill Companies, Inc. , All Rights Reserved.

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