Accounting Ch. 11.3

“Payroll” pertains to both:

Salaries - managerial, administrative, and sales personnel (monthly or yearly rate).

Wages - store clerks, factory employees, and manual laborers (rate per hour).

Determining payroll involves computing three amounts:

(1) gross earnings, (2) payroll deductions, and (3) net pay

Gross Earnings

Total compensation earned by an employee (wages or salaries, plus any bonuses and commissions).

• hours * rate

Payroll Deductions

1. Mandatory

   • FICA tax

   • Federal income tax

   • State income tax

2. Voluntary

   • Charity

   • Insurance

   • Union dues

   • Pension plans

Payroll Deductions percentages

FICA: 7.65% (Social Security - 6.2% and Medicare - 1.45%)

FUTA: 0.8%

SUTA: 5.4%

Net Pay

Gross earnings minus payroll deductions.

Journal Entry for Recording Payroll

Dr. Salaries and Wages Expense, Cr. FICA, Cr. Federal Income, Cr. State Income, (Cr. any other payroll deductions), Cr. Salaries and Wages Payable

Journal Entry for recording payment of payroll

Dr. Salaries and Wages Payable, Cr. Cash

3 taxes for employers

• FICA

• Federal unemployment tax (FUTA)

• State unemployment tax (SUTA)

Journal Entry for recording employer payroll expense

Dr. Payroll Tax Expense, Cr. FICA, Cr. FUTA, Cr. SUTA

Paid absences accrue liability if

• Payment of the compensation is probable

• The amount can be reasonably estimated

Adjusting Entry to record accrued vacation

Dr. Vacation Benefits Expense, Cr. Vacation Benefits Liability

Journal Entry for paying vacation benefits

Dr. Vacation Benefits Liability, Cr. Cash

Post-retirement benefits are

benefits that employers provide to retired employees for

1. health care and life insurance 2. pensions.

• Companies account for post-retirement benefits on the accrual basis.

Defined-Contribution Plan (pension)

• Employer contribution determined by plan (fixed)

• Risk borne by employees

• Benefits based on plan value

Defined-Benefit Plan (pension)

• Benefit determined by plan

• Employer contribution varies (determined by Actuaries)

• Risk borne by employer