Chapter 12

1 century 21 accounting 2009 South-Western, Cengage Learning Chapter 12 Objectives: accounting terms related to payroll records accounting practices related to payroll records a payroll time card payroll taxes a payroll register and an employee earnings record payroll checks century 21 accounting 2009 South-Western, Cengage Learning LESSON 12-1 - Preparing Payroll Time Cards Salary money paid for employee services Pay period period covered by a salary payment A business may decide to pay employee salaries every week, every two weeks, twice a month, or once a month How may pays would an employee receive in a year if he/she were Biweekly (every two weeks)..26 Semimonthly (twice a month)..24 Payroll total amount earned by all employees for a pay period Employees can be paid based on hours worked (wages), a fixed amount each pay (salary), commissions Time cards used to record how much time an employee worked century 21 accounting 2009 South-Western, Cengage Learning 3 LESSON 12-1 ANALYZING A PAYROLL TIME CARD page 341 century 21 accounting 2009 South-Western, Cengage Learning 4 LESSON 12-1 4.

2 Add the Hours column. CALCULATING EMPLOYEE HOURS WORKED page 342 1 2 3 4 3. Add Hours Reg and Hours OT columns and enter the totals. 2. Calculate the number of overtime hours and enter the amounts. 1. Calculate the number of regular hours for each day and enter the amounts. century 21 accounting 2009 South-Western, Cengage Learning 5 LESSON 12-1 CALCULATING EMPLOYEE TOTAL EARNINGS page 343 3 1 2 4 5 1. Enter the rate for regular time in the Rate column. 2. Calculate the regular earnings. Enter the amount. 3. Enter the rate for overtime. 4. Calculate the overtime earnings. Enter the amount. 5. Add the Amount column to calculate total earnings. Enter the amount of total earnings. century 21 accounting 2009 South-Western, Cengage Learning Calculating Employee Total Earnings Regular hours x Regular rate = Regular Earnings 88 x = 1, Regular rate x Overtime rate = Overtime Rate x = Overtime hours x = Overtime Earnings x = Regular Earnings + Overtime Earnings = Total Earnings 1,056 + 81 = 1,137 Total Earnings the total pay due for a pay period before deductions (gross pay or gross earnings)

3 This will be reduced by state and federal taxes and other deductions, such as health insurance 6 LESSON 12-1 century 21 accounting 2009 South-Western, Cengage Learning 7 LESSON 12-1 TERMS REVIEW salary pay period payroll total earnings page 344 century 21 accounting 2009 South-Western, Cengage Learning LESSON 12-2 - Determining Payroll Tax Withholding Payroll taxes taxes based on the payroll of a business Employers are required to withhold federal income taxes, along with other taxes (state, city, or county) Payroll taxes represent a liability for the employer until they are paid Accurate and detailed payroll records must be maintained in order to avoid errors and penalties Form W-4 contains the information used to determine the amount of income tax withheld Withholding allowance deduction from total earnings for each person legally supported by a taxpayer Amount withheld is based on employee marital status, # of withholding allowances, and employee earnings Tables are provided by IRS to determine income tax amount century 21 accounting 2009 South-Western, Cengage Learning 9 LESSON 12-2 EMPLOYEE S WITHHOLDING ALLOWANCE CERTIFICATE 1 2 3 4 5 page 346 1.

4 Write the employee s name and address 2. Write the employee s social security number. 3. Check the appropriate marital status block. 4. Write the total number of withholding allowances claimed. 5. The employee signs and dates the form. century 21 accounting 2009 South-Western, Cengage Learning 10 LESSON 12-2 EMPLOYEE S INCOME TAX WITHHOLDING MARRIED PERSONS page 348 1 2 3 1. Select the appropriate table. 2. Locate the employee s total earnings. 3. Intersection of wages and number of allowances column. century 21 accounting 2009 South-Western, Cengage Learning Determining Payroll Tax Withholding FICA Federal Insurance Contributions Act provides for a federal system of old-age, survivors, disability and hospital insurance Social security tax a federal tax paid for old-age, survivors, and disability insurance Medicare tax a federal tax paid for hospital insurance Both the employer AND employee pay Social Security and Medicare taxes Tax base maximum amount of earning on which a tax is calculated No more Social Security tax is deducted once an employee s earnings reach the base.

5 Social Security tax rate and base are set by Congress and can change at any time Medicare does NOT have a tax base 11 LESSON 12-1 century 21 accounting 2009 South-Western, Cengage Learning Determining Payroll Tax Withholding For this Social Security tax rate Base = $87,000 Medicare with no base Example, page 349 12 LESSON 12-1 Total Earnings x Social Security Tax Rate = Social Security Tax Deduction 1, x = Total Earnings x Medicare Tax Rate = Medicare Tax Deduction 1, x = century 21 accounting 2009 South-Western, Cengage Learning 13 LESSON 12-2 TERMS REVIEW payroll taxes withholding allowance social security tax Medicare tax tax base page 350 century 21 accounting 2009 South-Western, Cengage Learning LESSON 12-3 - Preparing Payroll Records Payroll register - A business form used to record payroll information Shows total earnings, payroll withholdings, and net pay of all employees for the pay period Net pay total amount paid to employees after payroll taxes and other deductions have been deducted Voluntary deductions deductions from employee earnings that are not required by the government Health insurance, US Savings Bonds, United Way Donations, Retirement Plans, etc.

6 Employee Earnings Record a business form used to record details affecting payments made to an employee century 21 accounting 2009 South-Western, Cengage Learning 15 LESSON 12-3 PAYROLL REGISTER 7 8 9 10 11 12 page 351 1 2 3 4 5 6 13 8. Health insurance premium deductions 2. Payment date 3. Employee personal data 9. Other employee payroll deductions 4. Earnings 10. Total deductions 5. Federal income tax withheld 11. Net pay 6. Social security tax withheld 12. Total, prove, and rule 7. Medicare tax withheld 13. Check number 1. Pay period date century 21 accounting 2009 South-Western, Cengage Learning 16 LESSON 12-3 EMPLOYEE EARNINGS RECORDS page 353 7. Total and prove 5. Earnings, deductions, net pay 2. Employee personal data 1 1. Last day of quarter 4. Pay period 3. Beginning accumulated earnings 6. Updated accumulated earnings 4 2 7 6 3 5 century 21 accounting 2009 South-Western, Cengage Learning 17 LESSON 12-3 TERMS REVIEW payroll register net pay employee earnings record page 355 century 21 accounting 2009 South-Western, Cengage Learning LESSON 12-4 - Preparing Payroll Checks Check is written out of the general checking account for the total of the net pay to cover payroll Check is then deposited in the Payroll Checking Account Special checking account for payroll is kept which helps to protect and control payroll payments Payroll checks have a detachable stub to supply information about the earnings and amounts deducted Information on stub comes from the payroll register century 21 accounting 2009 South-Western, Cengage Learning 19 LESSON 12-4 PAYROLL BANK ACCOUNT 1.

7 Prepare the check stub. page 356 2. Prepare the check. 1 2 century 21 accounting 2009 South-Western, Cengage Learning 20 LESSON 12-4 EMPLOYEE S PAYROLL CHECK page 357 1. Prepare the check stub of each employee s payroll check. 2. Prepare each employee s payroll check. 2 1