Business Math

Chapter 8

payrollgross earningssalaryhourly wageovertime ratecommissiondeductionsFederal Insurance Contributions Act (FICA)Social Security tax

Medicare taxtotal gross earningsperpetual inventory systempoint-of-sale terminalsperiodic inventory systemspecific identification methodfirst-in-first-out method (FIFO)last-in, first-out method (LIFO)

Chapter

8

Managing Payroll and Inventory

Chapter

8

Managing Payroll and Inventory

The Importance of Payroll RecordsChapter

8

Managing Payroll and Inventory

Common Steps in the Payroll System

Calculate Gross Earnings

Calculate PayrollDeductions

Prepare PayrollRecords

PreparePaychecks

Record Payroll Information in the Accounting Records

Report Payroll Information to the Government

1

2

3

4

5

6

Calculating Payroll DeductionsChapter

8

Managing Payroll and Inventory

Voluntary Deductions

Health or Life Insurance Programs

Union Dues

Contributions to Charities

Pensions and Other Retirement Plans

Direct Deposits to a Credit Union or Bank

Preparing Payroll RecordsChapter

8

Managing Payroll and Inventory

Sections of the Payroll

Register Pertaining to Money

Earnings

Overtime Pay

Gross Earnings

Preparing PaychecksSection 1

Chapter

8

Managing Payroll and Inventory

The Benefits of Direct Deposit

Employees do not have to go to the bank to deposit paychecks

No risk of misplacing or losing a check

Funds are usually available faster

Employers save the expense of paper and labor

Employer’s Payroll TaxesChapter

8

Managing Payroll and Inventory

Employer’s Share of FICA TaxesFederal law requires that the employer match the total amount deducted from employees’ paychecks for Social Security and Medicare.

Federal and State Unemployment TaxesThe employer pays both federal and state unemployment taxes.

The federal unemployment tax is 6.2 percent on the first $7,000 of an employee’s annual wages.

State unemployment tax rates and maximum taxable amounts vary among states.

Reporting Payroll Information to the Government

Chapter

8

Managing Payroll and Inventory

Issues Addressed by the Internal Revenue Code (IRC)

Determining whether the federal tax coverage rules apply

Computing an employee’s taxable wages

Calculating the amount of employment taxes to be withheld

Depositing the correct amount of taxes with the government

Filing employment tax returns

Payroll Accounting in Financial Management

Chapter

8

Managing Payroll and Inventory

Accurate payroll records are essential for controlling business expenses.

Payroll is often the biggest expense of running a business.

Establishing an Inventory SystemChapter

8

Managing Payroll and Inventory

The Stages of Merchandise

Tracking and controlling inventory is a major function of an accounting system.

StoringMerchandise

DisplayingMerchandise

SellingMerchandise

1 2 3 4

OrderingMerchandise

Controlling InventoryChapter

8

Managing Payroll and Inventory

Inventory Too Large

You may have purchased the wrong quantity

Cash may not be available for operating expenses

Merchandise may have to be sold at a loss

Inventory Too Low

Not enough choice for customers

Less cash from sales as customers go elsewhere

Disappointed customers may be lost forever

Analyzing Inventory TurnoverChapter

8

Managing Payroll and Inventory

InventoryTurnover

Average InventoryInventory Turnover LevelsDays in Stock

StockLists

Basic Stock ListModel Stock ListNever-Out List

Inventory SystemsChapter

8

Managing Payroll and Inventory

Perpetual Inventory

System

Constant, up-to-date records of inventoryCan use point of sale terminals Automated reordering possible

Periodic Inventory

System

Inventory records updated after physical countSome businesses shut down for inventory