Payroll Accounting 2018 CH 7

Labor Report

- Designated to inform managers and department heads - Shows where the labor is used within the company - Fosters allocation of labor expenses - Allows firm to bill time to customers accurately - Provides for analysis of employee efficiency and payroll trends

General Journal Conventions

- The date of the transaction is attached. - The Debit part of the transaction is on the first line and is flush-left in the column. - The Credit part of the transaction is on the second line and is indented slightly. - A brief description of the transaction is on line three. - Account numbers are annotated in the Post Reference column

General Journal

A chronological record of a firms financial transactions

What is always true about the general ledger?

A debit to an account in a general journal transaction is a debit to that account in the general ledger The general ledger contains information about the individual accounts used in general journal transactions The process of transferring amounts from the general journal to the general ledger is called posting

General Ledger

A record of a firm's financial transactions, grouped by account Once the transaction has been recorded in the General Journal, the accountant posts the entry to corresponding General Ledger accounts

Fiduciary

A relationship, specifically financial, built on trust between a trustee and a beneficiary

labor reports

A report that contains details about the number of hours worked and wages paid to employees

Connection of the Employees' Earnings Records to Periodic Tax Reports

Amounts listed on Employees' Earnings Records are used to facilitate computations and to verify accuracy of Form 941, 940, 944, and W-2/W-3. Employees' Earnings Records serve as an audit trail. May be used to re-create payroll data in the event of computer failure or a catastrophic event

accounting equation components

Asset = Amounts belonging to the company Liabilities = Amounts or services owed by the company Owner's equity = Residual value

Which of the following are true about the general ledger?

Balances in the general ledger payroll accounts are used in payroll reports Transactions from the general journal are posted to individual accounts

What is the second line in the general journal entry used for?

Credit accounting information

When the company pays for the state taxes withheld from the employee, the entry would be:

Credit to cash, debit to liability

The second set of debit and credit columns in the general ledger show:

Current balance in the payroll account

The first pair of debit and credit columns on the general ledger are for:

Current entry amount per account type

Examples of payroll related liabilities include:

Garnishments Federal Income tax FICA Taxes Union Dues

What is the original entry point for payroll information into the accounting system?

General Journal

How does a payroll accountant use the information in the General Ledger?

General Leger account balances aggregate data to determine payroll costs The account balances form the basis for accounting reports

Accounting Reports

Income Statement - Shows revenue and expenses of the firm Balance Sheet - Shows balance of all asset, liability, and owners' equity accounts at a specific time Trial Balance - Proves that Debits and Credits are equal

A computer glitch could cause:

Journal entries to post one sided

What are the common components of the posting reference?

Letter and number Journal entry and page number

What changes should be included in the employee earnings record?

Marital status Pay Rate

Which of the following taxes would be included in the employer related payroll entry?

Medicare Social Security Tax SUTA

Columns in the Employees' Earnings Records

Name Address. Telephone number. Social Security number. Full-time status. Marital status. Pay basis (i.e., hourly). Hire date. Birth date. Position. Pay rate. Pay period date. Year-to-date net pay. Year-to-date gross pay

Apart from recording of payroll and payment to employees, what other payroll related journal entries would be recorded?

Payment of statutory withholding Payment of voluntary withholding

Payroll Accruals and Reversals

Payroll may be split between two months Need to reflect the accrued payroll due but not paid and match the expenses to the correct period Create adjusting entry

Payroll Effects on the Accounting System

Payroll reflects a business expense Reduces profitability in proportion to wages paid Payroll expenses must be allocated to correct accounts and departments Bulk of accountant's work is considered a business overhead cost Not traceable to a single department

Payroll Register, Employees' Earning Records, and Accounting System Entries

Payroll register and employees' earnings records are important payroll accountant tools Tracking of governmental liabilities Yields the data needed for financial reports Provides information for decision-makers about costs and company profitability Accounting system entries record all payroll-related activity Business managers use accounting entries to inform their decisions Company viability depends on expense control

In a manufacturing environment, which of the employees time would be considered entirely directly billable?

Production supervisor Production line worker

The purpose of a labor report is to do what?

Report an individual employees regular time and over time Promote analysis of payroll expenses

Credits show increases to:

Revenue, equity, liabilities

The information to be transferred from the payroll register to the employee's earnings records is located in each ______

Row

The total of the Gross Earnings column of the payroll register for a given pay period will appear in which account for the payroll-related general journal entry?

Salaries and wages expense

The issuance of checks to employees would reduce:(which account)

Salaries and wages payable

Employer related payroll entries would include:

Shared employer-employee taxes Employer only taxes

Overtime report

allow managers to determine how much overtime has been paid to employees during a specified time period

balance sheet

any unpaid liabilities will be reported in the current liability section. If there are employees who have taken payroll advances, which are amounts to be repaid by the employee, these will show in the current assets section. In accrual accounting, there may also be end-of-period entries to accrue for payroll earned by the employees. Additional liability accounts for accrued salaries, accrued hourly wages, accrued holiday pay, and accrued paid time off could also appear, depending on the timing of the end of the period and the types of employees and benefits with which the company operates

Earnings records are supporting documents for:

computer backup

The information in the payroll register:

connects directly to the employee's earnings records

labor usage report

designates where the labor is used within the company useful in determining overhead allocations by department and the need for increased or decreased staff within a specific department

the employee _______ _______ contains year-to-date earnings for each employee

earnings record (the payroll register contains several earning records)

The cash based business will show an increase in payroll expenses when:

employees are paid

When the initial payroll journal entries are created, the accountant would debit the:

expense account

employees' earnings records

form the link between the accounting and the human resource departments. The information contained within each row of the payroll register is transferred to the employees' earnings records. Additionally, information from the payroll register is used to complete payroll entries in the General Journal the master document accountants use to track employees' marital status, deductions (mandatory, voluntary, and mandated), and year-to-date earnings Period totals are also included should be retained and destroyed at the same interval as other accounting records

Labor reports could be provided to:

management / department heads

A payroll accrual would be:

reversed in the next month

Labor reports for more than one year could provide:

seasonal labor requirements staffing pr income projections

billable vs. nonbillable report

tracks the time employees have spent specifically on projects for which customers are paying

A payroll accrual occurs:

When payday is after the end of the month When payroll spans two months

Which column exists in the employees' earnings records but not in the payroll register?

YTD Pay

post reference number

a combination of letters and numbers. The letters denote which journal the entry correlates. In this case, "J" means that the original entry may be found in the General Journal

Payroll Process Flowchart

Does your company have employees? Is it payday? Do you know much each employee should be paid? Do you have managerial approval for all employee pay for the period? Have you computed their payroll taxes properly? Have you computed their voluntary deductions? Have you included any other mandatory deductions? Have you completed the payroll register? Have you obtained approval for pay disbursements? Do you know what pay method each employee needs? Have you disbursed the employees' pay? Did you journalize and post the employees' payroll transaction? Did you update the employees' earning records? Have you computed the employer's share of the payroll taxes? Did you journalize and post the employer's share transactions? Did you prepare tax deposits and have them checked for accuracy? Did you deposit the payroll taxes? Did you prepare remittances for the mandatory and voluntary deductions? Are all outgoing remittances double-checked and approved? Did you transmit remittances for the mandatory and voluntary deductions? Have you prepared the appropriate tax returns? Did you have the returns checked for accuracy? Are the tax returns and remittances approved and signed by the appropriate parties? Did you transmit the tax returns and remittances? Have you prepared the financial statements and managerial reports?

General Ledger Posting Practices

Each line has a date Description only used for adjusting, closing, and reversing entries Post Reference is a combination of letters and numbers that denotes data source First pair of Dr. and Cr. are used to record General Journal entry Second pair of Dr. and Cr. are used to update account balance

Employees' Earnings Records

Each piece of data is used in multiple ways Pay disbursement Wage and Salary increases Changes to marital status Data on this form facilitates computations for taxes with maximum caps (e.g., FUTA, Social Security)

The Employees ________ _______ Connects accounting and human resource records

Earnings record

define the process of posting:

Entering transactions in the general ledger

Key Points

The payroll register connects directly to the employees' earnings records. The employees' earnings records are the link between accounting and human resources and contain information from the payroll register. Accounting principles assist in the classification of payroll costs and organizational performance. Payroll transactions are recorded in the General Journal and posted to General Ledger accounts. The balances in the General Ledger accounts form the foundation of financial reports. Payroll costs represent an expense of the business. Employees are assigned to departments to foster accurate measurements of business segment profitability. Accounting reports provide managers with insights into company profitability and stability. Payroll-related transactions contain both expenses and liabilities of a company. Employers have a fiduciary duty to ensure that all amounts deducted from employee pay are remitted to the appropriate entity. Trend reports offer business leaders insight about changes in labor costs over a period.

Payroll-Related General Journal Entries

The record of all of a firm's financial transactions Maintained in chronological order One big T-account that uses Dr. and Cr. - Columns to record the Debits and Credits associated with each transaction

trend report

Trend reports of income over the period of the year can reveal seasonal increases or decreases in business

Where will entries for payroll show up in the income statement?

Wages and taxes expense