Chapter Eight
Employee Earnings and Deductions
Accounting Is Fun! 8 - 2
Performance Objectives
1. Understand the role of laws that affect payroll deductions and contributions
2. Calculate total earnings based on an hourly, piece-rate, or commission basis
3. Determine deductions using tables of employees’ income tax withholding
Accounting Is Fun! 8 - 3
Performance Objectives
4. Complete a payroll register
5. Journalize the payroll entry from a payroll register
6. Maintain employees’ individual earnings records
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Employer Requirements
• To withhold federal and state taxes from employees’ paychecks
• To pay the withholdings (as well as other payments) to government agencies before specific deadlines
• To submit federal and state reports on official forms
• This makes payroll accounting very important!
Accounting Is Fun! 8 - 5
Required Payroll Records
1. Employee personal information– Name– Address– Social Security number– Date of birth
2. Data on wage payments– Dates and amounts of payments – Payroll periods
3. Amount of taxable wages paid– Dates and amounts earned year to date for the calendar
year involved
4. Amount of taxes withheld for each employee by pay period
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Calendar Year
• A twelve-month period beginning on January 1 and ending on December 31 of the same year
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Employees and Independent Contractors
• Employee– Under “direction and control” of employer
• Independent contractor– Someone who is engaged for a definite job or
service– Not under “direction and control” of employer– Decides how to do his or her own work
• Payments to independent contractors not subject to withholding or payroll taxes
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Objective 1
Understand the role of laws that affect payroll deductions and contributions
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Laws Affecting Employees’ Pay Deductions
• Fair Labor Standards Act– The act of 1938 that provides for minimum
standards for wages and overtime, including provisions related to child labor and equal pay for equal work
• Current Tax Payment Act– An act to require employers to withhold
and pay to the Internal Revenue Service employee funds
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Laws Affecting Employees’ Pay Deductions
• FICA Tax (employees’ share)– Social Security Act of 1935 and its
amendments provide benefits for retired workers, their spouses and minor children, disability insurance, Medicare, and supplemental security income
– Employees contribute 6.2 percent on first $84,900 earned in a calendar year for Social Security
– Employees contribute 1.45 percent on all earnings in calendar year for Medicare
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Laws Affecting Employer’s Payroll Tax Contributions
• Federal Insurance Contribution Act (FICA)
• State Unemployment Tax Act (SUTA)
• Federal Unemployment Tax Act (FUTA)
• Workers’ compensation laws
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FICA Taxes
• Social Security taxes plus Medicare taxes, paid by both employee and employer under the provisions of the Federal Insurance Contributions Act
• Employer matches employee contribution
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State Unemployment Tax Act (SUTA)
• A tax levied only on the employer in most states
• Rates differ among the various states; however, they are generally 5.4 percent or higher on the first $7,000 of total earnings paid to each employee during the calendar year
• Proceeds used to pay subsistence benefits to unemployed workers
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Federal Unemployment Tax Act (FUTA)
• A tax levied only on the employer, equal to 0.8 percent of the first $7,000 of total earnings paid to each employee during the calendar year
• This tax is used to support government-run employment offices throughout the country
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Workers’ Compensation Laws
• Laws that protect employees and dependents against losses due to death or injury incurred on the job
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Payment Periods
• Weekly
• Bi-weekly– 26 times a year
• Semimonthly– 24 times a year
• Monthly
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Earnings
• Wages– Contract states hourly, weekly, or piecework rate of pay
• Salary– Contract states monthly or yearly earnings
• Overtime—generally 1 ½ pay, minimums per FLSA• Supplemental pay
– Commissions– Bonuses– Cost-of-living adjustments– Profit sharing
• Paid by– Check or cash– Other assets (recorded at market value, or fair value)
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Performance Objective 2
Calculate total earnings based on an hourly, piece-rate, or commission basis
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Payroll• In earlier chapters we have seen:
• The $1,400.00 is really gross pay before deductions• Gross pay (or earnings)
– Total amount before deductions
• Deductions– Amounts taken out of an employee’s paycheck each pay period
• “Take home pay” or net pay– Gross pay minus deductions
DescriptionPost.Ref. Debit Credit
1 20052 June 24 Wages Expense 511 1,400.00 3 Cash 111 1,400.00 4 Paid wages of part-time employees (Ck. No. 3496)
General Journal
Date
Page 4Line #
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Time Card
Accounting Is Fun! 8 - 21
Calculate Hourly Wages and Overtime
Hourly Rate $22.84Overtime Multiple 150%
Assumptions
Regular Hour Worked 40 Hours x Hourly Rate $913.60
Overtime Hours WorkedMonday - Wednesday 0 Hours x Hourly Rate x Multiple =Thursday 2 Hours x Hourly Rate x Multiple = $
68.52Friday 1 Hours x Hourly Rate x Multiple = 34.26Saturday 3 Hours x Hourly Rate x Multiple = 102.78
Total Gross Earnings $1,119.16
Overtime by Day Method
Regular Pay 46 Total Hours x Hourly Rate $1,050.64Overtime Premium 6 Overtime Hours x (Multiple - 100%) x Hourly Rate 68.52
Total Gross Earnings $1,119.16
Overtime Premium Method
0
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Calculate Hourly Overtime for Salary
Monthly Salary $2,250.00Overtime Multiple 1.5Hours Worked in One Week 40Overtime Hours 4
Assumptions
Calculate Yearly Pay Monthly Salary x 12 $27,000.00Calculate Weekly Pay Yearly Salary / 52 $519.23Calculate Hourly Pay Weekly Salary / 40 $12.98
(1) Calculate Hourly Rate First
Regular Pay Hours x Hourly Rate 519.20$ Overtime Pay Hours x Hourly Rate x Multiple 77.88$
Total Gross earnings 597.08$
(2) Then Calculate Overtime
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Piece Rate
Piece rate per boomerang finished $2.12Number of boomerangs per week 500Total gross pay for the week(Piece rate x number of boomerangs) $1,060.00
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Commission
JanuarySales
Commission on Sales(Jan. Sales x Commission
Rate)
Base Salary(from Contract)
Gross Pay(Comm. + Base)
Vicky Chan $125,000 $4,063 $1,725 $5,788Jamal Robertson $97,855 $3,180 $1,725 $4,905Walt Dickenson $81,250 $2,641 $1,725 $4,366Sue Wong $95,500 $3,104 $1,725 $4,829Tom Carolyn $78,550 $2,553 $1,725 $4,278Totals
CommissionRate
3.25%
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Deductions from Total Earnings1. Federal income tax withholding2. State income tax withholding3. FICA tax (Social Security and Medicare), employee’s
share4. Purchase of U.S. savings bonds5. Union dues6. Insurance deductions (medical or life)7. Charitable contributions8. Pension contributions9. Credit union
– Automatic savings– Automatic loan repayment
10. Other deductions possible
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Employees’ Federal Income Tax Withholding: Employer Requirements
• Withhold federal income taxes from employees’ paychecks
• Pay the withheld federal income taxes to the IRS
• Keep required records
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Basis of Federal Income Tax Withholding
• Taxable earnings– The amount of an
employee’s earnings subject to a tax
• Marital status
• Number of withholding allowances claimed
• Withholding allowance– Amount of earnings that
are exempt from federal income tax
– How many?• One for personal
• One for spouse
• One for each dependent
• Exemption– Amount of yearly
earnings that are not taxed
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Employee’s Withholding Allowance Certificate (Form W-4)
• A form that specifies the number of allowances claimed by each employee
• Gives the employer the authority to withhold money for an employee’s federal income taxes and FICA taxes
• Must be filled out by every employee
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Accounting Is Fun! 8 - 30
Circular E
• Actual book or downloadable files to use in spreadsheet or accounting program provided free of charge by IRS to employers
• Contains withholding tables– Federal income tax– FICA
• Social Security• Medicare
• Lists rules for employer’s deposits• Lists requirements for submitting reports
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Wage-Bracket Tax Tables
• Tables providing the amounts to be deducted for income taxes based on earnings, marital status, and number of allowances claimed
• Payment periods covered– Monthly– Semimonthly– Biweekly– Weekly– Daily
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Using the Tables to Determine Deductions
• Step 1: Select correct table for payment period and marital status
• Step 2: Locate gross pay in first two columns• Step 3: Find column for number of
withholding allowances• Intersection shows amount of federal income
tax to withhold from paycheck• Be careful of:
– “At least”– “But less than”
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State Income Tax Withholding
• State tablesor
• Percentage of federal income tax deduction– Textbook assumes that employee’s state
income tax deduction is 20% of the federal income tax deduction
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FICA Taxes
• Social Security Taxes
• Federal taxes levied on employees and employers
• Proceeds used for– Pension payments
after a worker has reached 62 years
– Disability benefits for disabled worker and dependents
• Medicare Taxes• Federal taxes levied
on employees and employers
• Proceeds used for medical insurance for eligible people age 65 or over
Accounting Is Fun! 8 - 35
FICA Taxes
• Social Security rate = 6.2%(number equivalent = .062)– Only the first $84,900 of earnings are taxed
• Medicare rate = 1.45%(number equivalent = .0145)– All earnings are taxed
• Applied to gross earnings during a calendar year
• Calculated separately because of the different upper limits for two types of taxes
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Calculating FICA Taxes
Week Earnings = $1,119.16Cumulative Earnings to Date = $32,890.00FICA
Social Security Maximum $84,900.00Social Security Rate 6.20%Medicare Rate 1.45%
FICA Social Security Deduction
FICA Medicare Deduction
Vicky Wise
Accounting Is Fun! 8 - 37
Calculating FICA Taxes
Week Earnings = $1,119.16Cumulative Earnings to Date = $32,890.00FICA
Social Security Maximum $84,900.00Social Security Rate 6.20%Medicare Rate 1.45%
FICA Social Security Deduction($1,119.16*0.062) = $69.39FICA Medicare Deduction(Earnings*Rate) $16.23
Vicky Wise
Accounting Is Fun! 8 - 38
Calculating FICA Taxes
Week Earnings = $4,000.00Cumulative Earnings to Date = $81,233.00FICA
Social Security Maximum $84,900.00Social Security Rate 6.20%Medicare Rate 1.45%
FICA Social Security Deduction
FICA Medicare Deduction
Tommy Webster
Accounting Is Fun! 8 - 39
Calculating FICA Taxes
Week Earnings = $4,000.00Cumulative Earnings to Date = $81,233.00FICA
Social Security Maximum $84,900.00Social Security Rate 6.20%Medicare Rate 1.45%
FICA Social Security Deduction($84,900 - $81,233)*0.062 = $227.35FICA Medicare Deduction(Earnings*Rate) $58.00
Tommy Webster
Accounting Is Fun! 8 - 40
Calculating FICA Taxes
Week Earnings = $1,050.00Cumulative Earnings to Date = $85,525.00FICA
Social Security Maximum $84,900.00Social Security Rate 6.20%Medicare Rate 1.45%
FICA Social Security Deduction
FICA Medicare Deduction
Arwin King
Accounting Is Fun! 8 - 41
Calculating FICA Taxes
Week Earnings = $1,050.00Cumulative Earnings to Date = $85,525.00FICA
Social Security Maximum $84,900.00Social Security Rate 6.20%Medicare Rate 1.45%
FICA Social Security Deduction($85,525 > $84,900, thus: no tax) $0.00FICA Medicare Deduction(Earnings*Rate) $15.23
Arwin King
Accounting Is Fun! 8 - 42
Unemployment Taxes
• Unemployment taxable earnings represent remaining untaxed earnings up to state and federal maximum
• Not paid by employee in most states
• Paid by employer on the employee’s behalf
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Performance Objective 4
Complete a payroll register
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Payroll Register
• A multicolumn form prepared for each payroll period listing the earnings, deductions, and net pay for each employee
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Payroll Register for Week Ended: October 7, 2005
Let’s look at the different sections of the payroll register
Regular Overtime Total UnemploymentSocial
SecurityAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16 0.00 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30 735.30 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65 154.00 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25 0.00 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89 0.00 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67 0.00 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96 0.00 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75 0.00 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43 0.00 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51 0.00 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83 0.00 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24 0.00 300.00Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64 889.30 15,277.40
Taxable EarningsEndingCumulative
EarningsNameTotalHours
BeginningCumulative
Earnings
Earnings
FederalIncome Tax
StateIncome Tax
SocialSecurity Tax Medicare Tax
MedicalInsurance
TotalDeductions
NetAmount
Check#
150.00 30.00 69.39 16.23 11.19 276.81 842.35 93180.00 16.00 45.59 10.66 11.03 UW 12.00 175.28 560.02 932
107.00 21.40 56.77 13.28 13.73 UW 15.00 227.18 688.47 933123.00 24.60 66.54 15.56 16.10 245.80 827.45 934394.00 78.80 117.11 27.39 28.33 UW 645.63 1,243.26 935395.00 79.00 117.28 27.43 28.38 UW 10.00 657.09 1,234.58 936312.00 62.40 99.14 23.18 23.98 UW 12.00 532.70 1,066.26 937193.00 38.60 78.85 18.44 19.08 UW 20.00 367.97 903.78 938284.00 56.80 93.03 21.76 22.51 478.10 1,022.33 939372.00 74.40 112.44 26.30 27.20 AR 50.00 662.34 1,151.17 940164.00 32.80 72.47 16.95 17.53 UW 25.00 328.75 840.08 941665.00 133.00 18.60 41.85 41.44 UW 30.00 929.89 1,956.35 942
3,239.00 647.80 947.21 259.03 260.50 174.00 5,527.54 12,336.10
Other
Deductions Payments
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Compare Beginning Cumulative Earnings with Maximums for Social Security and Unemployment
Asino, Matte E. 46 32,890.00Boritsky, Olga 45 6,192.00Dray, Greg G. 49 6,846.00Foulkes, Bob L. 40 38,637.00Groyer, Milli K. 40 68,000.00Kramer, Ada A. 40 68,100.00Minkowitz, John L. 55 36,840.00Orleons, Janet C. 40 45,783.00Pinkovich, Mark S. 44 46,970.00Romero, Sheila J. 45 54,978.00Tivoli, Jake T. 40 42,078.00Wilson, Sharlet D. 52 84,600.00Totals 531,914.00
NameTotalHours
BeginningCumulative
Accounting Is Fun! 8 - 47
Calculate Regular and Overtime Earnings
Regular Overtime TotalAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24Totals 531,914.00 15,357.57 2,506.07 17,863.64
NameTotalHours
BeginningCumulative
Earnings
Accounting Is Fun! 8 - 48
Calculate Ending Cumulative Earnings
Regular Overtime TotalAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64
EndingCumulative Name
TotalHours
BeginningCumulative
Earnings
Accounting Is Fun! 8 - 49
Calculate Taxable Earnings
UnemploymentSocial
Security Medicare0.00 1,119.16 1,119.16
735.30 735.30 735.30154.00 915.65 915.65
0.00 1,073.25 1,073.250.00 1,888.89 1,888.890.00 1,891.67 1,891.670.00 1,598.96 1,598.960.00 1,271.75 1,271.750.00 1,500.43 1,500.430.00 1,813.51 1,813.510.00 1,168.83 1,168.830.00 300.00 2,886.24
889.30 15,277.40 17,863.64
Taxable Earnings
We calculate the amount of earnings that are taxable for the unemployment taxes. We will use this amount in Chapter 9 to calculate the tax.
Accounting Is Fun! 8 - 50
Calculate Deductions
FederalIncome Tax
StateIncome Tax
SocialSecurity Tax Medicare Tax
MedicalInsurance
TotalDeductions
150.00 30.00 69.39 16.23 11.19 276.8180.00 16.00 45.59 10.66 11.03 UW 12.00 175.28
107.00 21.40 56.77 13.28 13.73 UW 15.00 227.18123.00 24.60 66.54 15.56 16.10 245.80394.00 78.80 117.11 27.39 28.33 645.63395.00 79.00 117.28 27.43 28.38 UW 10.00 657.09312.00 62.40 99.14 23.18 23.98 UW 12.00 532.70193.00 38.60 78.85 18.44 19.08 UW 20.00 367.97284.00 56.80 93.03 21.76 22.51 478.10372.00 74.40 112.44 26.30 27.20 AR 50.00 662.34164.00 32.80 72.47 16.95 17.53 UW 25.00 328.75665.00 133.00 18.60 41.85 41.44 UW 30.00 929.89
3,239.00 647.80 947.21 259.03 260.50 174.00 5,527.54
Other
Deductions
FromTables
20% ofFed. Tax
Calculate,6.2%
84,900
Calculate,1.45%
GivenGiven
UW = United WayAR = A/R
Accounting Is Fun! 8 - 51
TotalDeductions
NetAmount
Ck. No.
SalesWages Expense
OfficeWages Expense
276.81 842.35 931.00 1,119.16175.28 560.02 932.00 735.30227.18 688.47 933.00 915.65245.80 827.45 934.00 1,073.25645.63 1,243.26 935.00 1,888.89657.09 1,234.58 936.00 1,891.67532.70 1,066.26 937.00 1,598.96367.97 903.78 938.00 1,271.75478.10 1,022.33 939.00 1,500.43662.34 1,151.17 940.00 1,813.51328.75 840.08 941.00 1,168.83929.89 1,956.35 942.00 2,886.24
5,527.54 12,336.10 13,626.97 4,236.67
Expense Account DebitedPayments
Total Earnings – Total Deductions = Net Pay&
Two Different Wages Expenses
…Earnings
Total1,119.16
735.30915.65
1,073.251,888.891,891.671,598.961,271.751,500.431,813.511,168.832,886.24
17,863.64
Accounting Is Fun! 8 - 52
Performance Objective 5
Journalize the payroll entry from a payroll register
Accounting Is Fun! 8 - 53
Regular Overtime Total UnemploymentSocial
SecurityAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16 0.00 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30 735.30 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65 154.00 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25 0.00 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89 0.00 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67 0.00 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96 0.00 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75 0.00 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43 0.00 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51 0.00 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83 0.00 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24 0.00 300.00Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64 889.30 15,277.40
Taxable EarningsEndingCumulative
EarningsNameTotalHours
BeginningCumulative
Earnings
Earnings
Expense
Journalize the Payroll Entry from a Payroll Register
FederalIncome Tax
StateIncome Tax
SocialSecurity Tax Medicare Tax
MedicalInsurance
TotalDeductions
NetAmount
Check#
SalesWages Expense
OfficeWages Expense
177.00 35.40 69.39 16.23 11.19 309.21 809.95 931 1,119.16 0.0090.00 18.00 45.59 10.66 11.03 UW 12.00 187.28 548.02 932 735.30 0.00
103.00 20.60 56.77 13.28 13.73 UW 15.00 222.38 693.27 933 915.65 0.00122.00 24.40 66.54 15.56 16.10 244.60 828.65 934 0.00 1,073.25394.44 78.89 117.11 27.39 28.33 646.16 1,242.73 935 1,888.89 0.00395.30 79.06 117.28 27.43 28.38 UW 10.00 657.45 1,234.22 936 0.00 1,891.67312.24 62.45 99.14 23.18 23.98 UW 12.00 532.99 1,065.97 937 1,598.96 0.00222.00 44.40 78.85 18.44 19.08 UW 20.00 402.77 868.98 938 0.00 1,271.75284.65 56.93 93.03 21.76 22.51 478.88 1,021.55 939 1,500.43 0.00372.31 74.46 112.44 26.30 27.20 AR 50.00 662.71 1,150.80 940 1,813.51 0.00176.00 35.20 72.47 16.95 17.53 UW 25.00 343.15 825.68 941 1,168.83 0.00665.43 133.09 18.60 41.85 41.44 UW 30.00 930.41 1,955.83 942 2,886.24 0.00
3,314.37 662.88 947.21 259.03 260.50 174.00 5,617.99 12,245.65 13,626.97 4,236.67
Expense Account Debited
Other
PaymentsDeductions
Expense
Accounting Is Fun! 8 - 54
Payroll Journal Entry:Expenses
DescriptionPost.Ref. Debit Credit
2005October 7 Sales Wages Expense 13,626.97
Office Wages Expense 4,236.67
General Journal page 5
Date
Accounting Is Fun! 8 - 55
Journalize the Payroll Entry from a Payroll Register
Expense
Regular Overtime Total UnemploymentSocial
SecurityAsino, Matte E. 46 32,890.00 913.60 205.56 1,119.16 34,009.16 0.00 1,119.16Boritsky, Olga 45 6,192.00 619.20 116.10 735.30 6,927.30 735.30 735.30Dray, Greg G. 49 6,846.00 684.60 231.05 915.65 7,761.65 154.00 915.65Foulkes, Bob L. 40 38,637.00 1,073.25 0.00 1,073.25 39,710.25 0.00 1,073.25Groyer, Milli K. 40 68,000.00 1,888.89 0.00 1,888.89 69,888.89 0.00 1,888.89Kramer, Ada A. 40 68,100.00 1,891.67 0.00 1,891.67 69,991.67 0.00 1,891.67Minkowitz, John L. 55 36,840.00 1,023.33 575.63 1,598.96 38,438.96 0.00 1,598.96Orleons, Janet C. 40 45,783.00 1,271.75 0.00 1,271.75 47,054.75 0.00 1,271.75Pinkovich, Mark S. 44 46,970.00 1,304.72 195.71 1,500.43 48,470.43 0.00 1,500.43Romero, Sheila J. 45 54,978.00 1,527.17 286.34 1,813.51 56,791.51 0.00 1,813.51Tivoli, Jake T. 40 42,078.00 1,168.83 0.00 1,168.83 43,246.83 0.00 1,168.83Wilson, Sharlet D. 52 84,600.00 1,990.56 895.68 2,886.24 87,486.24 0.00 300.00Totals 531,914.00 15,357.57 2,506.07 17,863.64 549,777.64 889.30 15,277.40
Taxable EarningsEndingCumulative
EarningsNameTotalHours
BeginningCumulative
Earnings
Earnings
FederalIncome Tax
StateIncome Tax
SocialSecurity Tax Medicare Tax
MedicalInsurance
TotalDeductions
NetAmount
Check#
150.00 30.00 69.39 16.23 11.19 276.81 842.35 93180.00 16.00 45.59 10.66 11.03 UW 12.00 175.28 560.02 932
107.00 21.40 56.77 13.28 13.73 UW 15.00 227.18 688.47 933123.00 24.60 66.54 15.56 16.10 245.80 827.45 934394.00 78.80 117.11 27.39 28.33 UW 645.63 1,243.26 935395.00 79.00 117.28 27.43 28.38 UW 10.00 657.09 1,234.58 936312.00 62.40 99.14 23.18 23.98 UW 12.00 532.70 1,066.26 937193.00 38.60 78.85 18.44 19.08 UW 20.00 367.97 903.78 938284.00 56.80 93.03 21.76 22.51 478.10 1,022.33 939372.00 74.40 112.44 26.30 27.20 AR 50.00 662.34 1,151.17 940164.00 32.80 72.47 16.95 17.53 UW 25.00 328.75 840.08 941665.00 133.00 18.60 41.85 41.44 UW 30.00 929.89 1,956.35 942
3,239.00 647.80 947.21 259.03 260.50 174.00 5,527.54 12,336.10
Other
Deductions Payments
Payables
Accounting Is Fun! 8 - 56
Payroll Journal Entry:Expenses and Payables
DescriptionPost.Ref. Debit Credit
2005October 7Sales Wages Expense 13,626.97
Office Wages Expense 4,236.67Employees’ Federal Income Tax Payable 3,239.00FICA Tax Payable 1,206.24Employees' State Income Tax Payable 647.80Employees' Medical Insurance Payable 260.50Employees' United Way Payable 124.00Accounts Receivable 50.00Wages Payable 12,336.10
Payroll Register, for week ended Oct. 7
General Journal page 5
Date
Accounting Is Fun! 8 - 57
Payroll Journal Entry
Although Social Security & Medicare taxes are calculated separately, they are treated as a single payable because they will be paid at the same time
Equivalent to sum of take home pay for all employees
DescriptionPost.Ref. Debit Credit
2005October 7 Sales Wages Expense 13,626.97
Office Wages Expense 4,236.67Employees Federal Income Tax Payable 3,239.00FICA Tax Payable 1,206.24Employees' State Income Tax Payable 647.80Employees' Medical Insurance Payable 260.50Employees' United Way Payable 124.00Accounts Receivable 50.00Wages Payable 12,336.10
Payroll Register, for week ended Oct. 7
General Journal page 5
Date
Accounting Is Fun! 8 - 58
Paying Employees from Regular Checking Account
Accounting Is Fun! 8 - 59
Paycheck
Accounting Is Fun! 8 - 60
Payroll Bank Account
• A special checking account used to pay a company’s employees
• Money transferred from the regular checking account to the payroll account
Accounting Is Fun! 8 - 61
Journal Entry for Paying Employees from Payroll Bank Account
DescriptionPost.Ref. Debit Credit
2005October 8 Wages Payable 12,336.10
Cash—Payroll Bank Account 12,336.10Paid wages for week ended October 7
Date
General Journal Page 11
Clear payable with a debit
Credit Cash— Payroll Bank
Account
Accounting Is Fun! 8 - 62
Performance Objective 6
Maintain employees’ individual earnings records
Accounting Is Fun! 8 - 63
Employee’s Individual Earnings Record
• A supplementary record for each employee showing personal payroll data and yearly cumulative earnings, deductions, and net pay
• Contains source data for the required payroll tax reports
Accounting Is Fun! 8 - 64
Employee’s Individual Earnings Record
Accounting Is Fun! 8 - 65
Demonstration Problem
Payroll Register for Week Ended October 14, 2005—page 72
Payroll Problem
Names Beg. Cum. Earn. Week's Earnings Unemployment FICA FICABarker, T. C. 6,820.00 480.00 UE Max SS Max Medicare MaxEllis, M. R. 6,840.00 470.00 $7,000.00 $84,900.00Fisk, C. P. 36,320.00 740.00 Fed Rate SS Rate M RateJanus, V. O. 69,043.00 540.00 0.008 6.20% 1.45%Pham, H. L. 84,857.00 1,389.00 State RateGell, M. A. 85,430.00 1,690.00 0.054
Accounting Is Fun! 8 - 66
Look to Beginning Earnings to Determine If There Are Taxable Earnings
Total UnemploymentSocial
Security MedicareBarker, T. C. 6,820.00 480.00Ellis, M. R. 6,840.00 470.00Fisk, C. P. 36,320.00 740.00Janus, V. O. 69,043.00 540.00Pham, H. L. 84,857.00 1,389.00Gell, M. A. 85,430.00 1,690.00Totals 289,310.00 5,309.00 0.00 0.00 0.00 0.00
Payroll Register for Week Ended October 14, 2005—page 72Ending
Cumulative EarningsName
BeginningCumulative
Earnings
Taxable Earnings
Accounting Is Fun! 8 - 67
Calculate Ending Cumulative Earnings
Total UnemploymentSocial
Security MedicareBarker, T. C. 6,820.00 480.00 7,300.00Ellis, M. R. 6,840.00 470.00 7,310.00Fisk, C. P. 36,320.00 740.00 37,060.00Janus, V. O. 69,043.00 540.00 69,583.00Pham, H. L. 84,857.00 1,389.00 86,246.00Gell, M. A. 85,430.00 1,690.00 87,120.00Totals 289,310.00 5,309.00 294,619.00 0.00 0.00 0.00
EndingCumulative
EarningsName
BeginningCumulative
Earnings
Taxable EarningsPayroll Register for Week Ended October 14, 2005—page 72
Accounting Is Fun! 8 - 68
Calculate Taxable Earnings
Total UnemploymentSocial
Security MedicareBarker, T. C. 6,820.00 480.00 7,300.00 180.00 480.00 480.00Ellis, M. R. 6,840.00 470.00 7,310.00 160.00 470.00 470.00Fisk, C. P. 36,320.00 740.00 37,060.00 0.00 740.00 740.00Janus, V. O. 69,043.00 540.00 69,583.00 0.00 540.00 540.00Pham, H. . 84,857.00 1,389.00 86,246.00 0.00 43.00 1,389.00Gell, M. A. 85,430.00 1,690.00 87,120.00 0.00 0.00 1,690.00Totals 289,310.00 5,309.00 294,619.00 340.00 2,273.00 5,309.00
Payroll Register for Week Ended October 14, 2005—page 72Ending
Cumulative EarningsName
BeginningCumulative
Earnings
Taxable Earnings
Accounting Is Fun! 8 - 69
Calculate Deductions
Total UnemploymentSocial
Security MedicareBarker, T. C. 6,820.00 480.00 7,300.00 180.00 480.00 480.00Ellis, M. R. 6,840.00 470.00 7,310.00 160.00 470.00 470.00Fisk, C. P. 36,320.00 740.00 37,060.00 0.00 740.00 740.00Janus, V. O. 69,043.00 540.00 69,583.00 0.00 540.00 540.00Pham, H. . 84,857.00 1,389.00 86,246.00 0.00 43.00 1,389.00Gell, M. A. 85,430.00 1,690.00 87,120.00 0.00 0.00 1,690.00Totals 289,310.00 5,309.00 294,619.00 340.00 2,273.00 5,309.00
Payroll Register for Week Ended October 14, 2005—page 72Ending
Cumulative EarningsName
BeginningCumulative
Earnings
Taxable Earnings
Salary ExpenseFederal
Income TaxState
Income TaxSocial
Security Tax Medicare TaxTotal
DeductionsNet
AmountCk. No. Salary Expense
46.00 5.52 29.76 6.96 88.2445.00 5.40 29.14 6.82 86.3685.00 10.20 45.88 10.73 151.8155.00 6.60 33.48 7.83 102.91
238.00 28.56 2.67 20.14 289.3764.00 7.68 0.00 24.51 96.19
533.00 63.96 140.93 76.99 814.88 0.00 0.00
Payroll Register for Week Ended October 14, 2005—page 72PaymentsDeductions
Accounting Is Fun! 8 - 70
Calculate Payments and Expense
Total UnemploymentSocial
Security MedicareBarker, T. C. 6,820.00 480.00 7,300.00 180.00 480.00 480.00Ellis, M. R. 6,840.00 470.00 7,310.00 160.00 470.00 470.00Fisk, C. P. 36,320.00 740.00 37,060.00 0.00 740.00 740.00Janus, V. O. 69,043.00 540.00 69,583.00 0.00 540.00 540.00Pham, H. . 84,857.00 1,389.00 86,246.00 0.00 43.00 1,389.00Gell, M. A. 85,430.00 1,690.00 87,120.00 0.00 0.00 1,690.00Totals 289,310.00 5,309.00 294,619.00 340.00 2,273.00 5,309.00
Payroll Register for Week Ended October 14, 2005—page 72Ending
Cumulative EarningsName
BeginningCumulative
Earnings
Taxable Earnings
Salary ExpenseFederal
Income TaxState
Income TaxSocial
Security Tax Medicare TaxTotal
DeductionsNet
AmountCk. No. Salary Expense
46.00 5.52 29.76 6.96 88.24 391.76 714 480.0045.00 5.40 29.14 6.82 86.36 383.64 715 470.0085.00 10.20 45.88 10.73 151.81 588.19 716 740.0055.00 6.60 33.48 7.83 102.91 437.09 717 540.00
238.00 28.56 2.67 20.14 289.37 1,099.63 718 1,389.0064.00 7.68 0.00 24.51 96.19 1,593.81 719 1,690.00
533.00 63.96 140.93 76.99 814.88 4,494.12 5,309.00
Payroll Register for Week Ended October 14, 2005—page 72PaymentsDeductions
Accounting Is Fun! 8 - 71
Make Journal Entry from Register
Total UnemploymentSocial
Security MedicareBarker, T. C. 6,820.00 480.00 7,300.00 180.00 480.00 480.00Ellis, M. R. 6,840.00 470.00 7,310.00 160.00 470.00 470.00Fisk, C. P. 36,320.00 740.00 37,060.00 0.00 740.00 740.00Janus, V. O. 69,043.00 540.00 69,583.00 0.00 540.00 540.00Pham, H. . 84,857.00 1,389.00 86,246.00 0.00 43.00 1,389.00Gell, M. A. 85,430.00 1,690.00 87,120.00 0.00 0.00 1,690.00Totals 289,310.00 5,309.00 294,619.00 340.00 2,273.00 5,309.00
Payroll Register for Week Ended October 14, 2005—page 72Ending
Cumulative EarningsName
BeginningCumulative
Earnings
Taxable Earnings
Salary ExpenseFederal
Income TaxState
Income TaxSocial
Security Tax Medicare TaxTotal
DeductionsNet
AmountCk. No. Salary Expense
46.00 5.52 29.76 6.96 88.24 391.76 714 480.0045.00 5.40 29.14 6.82 86.36 383.64 715 470.0085.00 10.20 45.88 10.73 151.81 588.19 716 740.0055.00 6.60 33.48 7.83 102.91 437.09 717 540.00
238.00 28.56 2.67 20.14 289.37 1,099.63 718 1,389.0064.00 7.68 0.00 24.51 96.19 1,593.81 719 1,690.00
533.00 63.96 140.93 76.99 814.88 4,494.12 5,309.00
Payroll Register for Week Ended October 14, 2005—page 72PaymentsDeductions
ExpensePayables
Accounting Is Fun! 8 - 72
Record Salary Expense
DescriptionPost.Ref. Debit Credit
2005Oct. 14 Salary Expense 5,309.00
General Journal Page 17
Date
Accounting Is Fun! 8 - 73
Record Payables to Make DR = CR
DescriptionPost.Ref. Debit Credit
2005Oct. 14 Salary Expense 5,309.00
Employees’ Federal Income Tax Payable 533.00Employees’ State Income Tax Payable 63.96FICA Tax Payable 217.92Salaries Payable 4,494.12
Payroll Register for Week Ended October 14, 2005—page 72
General Journal Page 17
Date
Accounting Is Fun! 8 - 74
Journalize Cash Payments to Employees
DescriptionPost.Ref. Debit Credit
2005Oct. 14 Salary Expense 5,309.00
Employees’ Federal Income Tax Payable 533.00Employees' State Income Tax Payable 63.96FICA Tax Payable 217.92Salaries Payable 4,494.12
Payroll Register for Week Ended October 14, 2005—page 72
14 Salaries Payable 4,494.12Cash—Payroll Bank Account 4,494.12
Paid wages for week ended Oct. 14, 2005
General Journal Page 17
Date