recording payroll

Sunil is issuing Sara's paycheck. The pay stub shows a net pay of $1,573.61. The following deductions were made: FICA Medicare: $6.08 FICA Social Security: $23.87 Federal Income Tax: $18.54 State Income Tax: $35.42 Medical insurance: $72.01 What was Sara's gross pay?

$1,729.53

Darnell's paycheck is for $2,480.84. You log the following employer expenses: FUTA payable: $81.54 SUTA payable: $180.32 What is Darnell's net pay?

$2,480.84

what tax forms do independent contractors use during tax season?

-1099s -W-9s

employee

someone who may be eligible for benefits (such as medical insurance coverage) and the business is responsible for collecting and paying income taxes on them

pay/check date

the date the pay is given to the employee

YTD (Year-to-date)

used to show the accumulated withholdings, taxes or accrued compensation on a paycheck

When it comes to payroll, which of the following is true about cash basis accounting?

you will log your payroll payments at the same time wages are provided to employees

what are the federal tax withholdings?

-FICA (Federal Insurance Contributions Act) -FUTA (Federal Unemployment Tax Act) -SUTA (State Unemployment Tax Act) -SDI (State Disabilities Insurance) -taxable wages

wage garnishment

-legal procedure in which a person's earnings are required by court order to be withheld by an employer for the payment of debt -recorded as liability payable

SDI

-less common tax, only used in some states, payroll tax that funds employees financially if they are injured on the job

3 payroll systems

-manual payroll -outsourcing payroll -payroll software

accrual basis accounting

-mathching principle ensures that wages are recorded in the same period as the work was performed rather than when the payment is performed ex. an employee worked in March but received their salary on April 1st, the wages will be recorded in the March financial records

salaried payments

-owner is designated as a staff employee and receives a "reasonable" salary -found in LLCs, C corp, S corp, non profit businesses

draw

-owner takes funds from their business holdings for individual use -you may see this in sole proprietorship, partnership, LLC

guaranteed payment

-reasonable compensation for the role of the partner -not typically subjected to tax withholdings -may see this in partnerships and LLCs

distributions/dividends

-receiving a percentage of a business' profits -distributions are seen in s corps -dividends are see in c corps

SUTA

-tax that only the employer pays that funds state-administered unemployment programs

FICA

-the are taxes going into Medicare and Social Security -paid by employees and employers OASDI/Social Security - old age, survivors, disability insurance tax HI or medicare tax -hospital insurance

pay period

-timeframe in which a business runs its payroll -must comply with state and federal labor laws which differ across states and may vary based on the type of worker/occupation

gross pay

-total earned by an employee before any deductions -represents full compensation that an employee is entitled to based on their salary/hourly wage without considering any withholdings or deductions

independent contractor

-type of worker who is independent of your benefits and must pay taxes on their earnings themselves -considered self-employed and are contracted to provide services as a non employee

W-9

-used when hiring independent contractors -filled out by the independent contractor not employer -independent contractor gives this form to employer so he has the info to fill out the 1099 at the end of the year -DOES NOT SET UP TAX WITHHOLDING -independent contractors can submit an EIN or their SS as theri TIN

pay periods

Weekly, Bi-Weekly, Semi-Monthly, Monthly

salaries payable

an account used to keep track of the wages owed to employees before any taxes or deductions have been withheld and before they have been paid

employee reimbursement payable

an account used to track transactions where employees use their own funds to pay for expenses that will be reimbursed by the business

employee vacation payable

an account used to track wages that are paid to employees when they are using their paid time off or vacation pay

non exempt employees

employee is eligible for overtime pay benefits once they have worked over 40 hours per week (usually an hourly employee)

exempt employees

employee is not eligible for overtime pay (salaried employee)

cash basis accounting

form of accounting where only money paid or withheld during the current period is recorded in the books for that period and excludes any future benefits or payments that have not yet been made

Carter's business has hired seasonal help for holiday events during their busiest time of the year. He's set up the first pay period to run from November 23rd to December 6th, with bi-weekly pay. This means, their first paycheck won't be deposited until December 9th. When would Carter record the wage expense for this pay period in his books if he is using accrual accounting?

he would have to calculate how much of the wages were earned in November to record at the end of the month and do a similar calculation for December's wages

Aruna is a partner in her sister Yasmine's business, a traditional Indian cuisine restaurant. They have decided to make sure they are equally invested and share the day-today running of the restaurant. They have also decided not to pay themselves by guaranteed payments, but will use a different option? Which of the following is the other option available to them as business partners?

pay themselves by draw

When calculating net pay, all of the following are examples of employee deductions except: health insurance garnishments FUTA FICA

FUTA

manual payroll

-least commonly used -prepare payroll by hand using a spreadsheet -too many numbers, updates and regulations to be aware of

what tax forms do exempt/non exempt employees use during tax season?

-W-2s -W-4s

FUTA

-a payroll tax only the employer pays

944

-alternative to Form 941 for small sized businesses -specifically for eligible employers with a yearly tax liability of $1,000 or less -allows these employers to report and pay their employment taxes just once a year, simplifying the process

net pay

-amount of income that employee receives after deductions of taxes, insurance premiums, and retirement contributions

w-2

-annual wages and the amount of total taxes withheld from their paychecks -a business owner is responsible for issuing this form to employees no later than January 31st each year and submitting copies to the IRS

payroll software

-assists with tracking all the compliance concerns, local, state and federal taxes, updates and benefits, healthcare components

sensitive information

-be sure your client has a method for securing and disposing of digital and paper information so that they don't compromise the business or employees

941

-business files this form quarterly -used to report payroll info to IRS -allows employers to pay SS and medicare taxes for the previous quarter

outsourcing payroll

-business pays someone else to do everything from the timesheets, bookkeeping, to the taxes

wage garnishment debts

-child support -unpaid taxes -credit card debt -defaulted student loans -medical bills -court fees

cash flow

-clients will want to consider the business's cash flow situation -based on when the business has more cash coming in, that's probably a good time to issue checks to the employees

how do you record owner's payments?

-debit guaranteed payments/owner's draws -credit cash account for same amount

journal entries for standard employees

-debit the wage expense account -credit tax payable and cash accounts

paid time off (PTO)

-designated time that an employee is granted off from work while still receiving their regular pay

4 main ways an owner of a business can get paid

-draw -guaranteed payment -salaried payment -distributions or dividends

which method of payments are recorded on the balance sheet?

-draws -distributions -dividends

taxable wages

-earnings from which an employer must withhold taxes and does not include non-taxable wages such as employee contributions to a health savings account

w-4 (employee's withholding certificate)

-employee completes and returns the form to their employer -ensures that taxes are being withheld at a rate that the employee chooses -form protects both employer and employee

what do payroll systems need to keep track of?

-employee-related costs and benefits -federal tax withholdings

1099s

-given out to independent contractors who were paid at least $600 within a calendar year -business owner is responsible for issuing this form to employees no later than January 31st and submitting copies to the IRS

which method of payments are recorded on the income statement?

-guaranteed payments -salaries

Jose is expanding his painting business and wants to hire additional contractors to help out. He knows they are not considered employees but are independent contractors. As independent contractors, which of the following are true?

-he will use a form w-9 for hiring instead of a w-4 -the independent contractors will be responsible for withholding their own taxes

FLSA violation

-if an non exempt employee is occasionally working "off the clock" such as answering emails outside of work hours or during unpaid meal breaks, this still counts as compensable work -If your client is not paying non-exempt employees for this time, they could be in a code violation

payroll cash flow

1. Money goes through the business directly to employees as wages earned 2. Money goes into a tax payable account. This where money is stored on behalf of employees to be paid to the state or federal government 3. Money goes into a tax payable account on behalf of the business to pay for state or federal business taxes the business owes

The cosmetics story also employs a full time hourly employee and is accrual based. The pay period ends on April 20th, and the employee doesn't get paid until May 3rd. In which month should this expense be recorded?

April

A salesperson at a cosmetics story makes 5% commission on every sale they make in the month of January but their commission isn't paid until February. If the business is accrual based, when will the commission be recorded on the books?

January

A different client practices cash-basis accounting. Mark, an employee, gets paid weekly. His June 30th paycheck represents the work performed June 19th to June 23. His July 7th paycheck represents the work performed June 26th to June 30th. When will the payment for work done from June 26th to June 30th be recorded?

July

Marvin and Jax both worked 50 hours last week. Marvin is exempt and Jax is non-exempt. What will be different about their pay checks?

Marvin will not receive overtime pay, but Jax will