2019 Section 11: Payroll Accounting

What are reversals, and how do they affect accounting?

Accruals generally are estimates, so they must be corrected by reversing entries during the next accounting period when the actual expenses and liabilities are recorded.

When a company purchases a computer on credit for $2,500, which of the following journal entries is made? a. Debit assets and debit liabilities b. Debit assets and credit liabilities c. Credit assets and debit liabilities d. Credit assets and credit owner's equity

b. Debit assets and credit liabilities

Which of the following is not a payroll department internal control? a. Segregation of duties b. Physical payouts c. Computer edits d. Balancing accounts

d. Balancing accounts

What journal entry is made to record the deposit of federal income tax? a. Debit payroll taxes expense, credit federal income tax payable b. Debit cash, credit federal income tax payable c. Credit payroll taxes expense, debit cash d. Debit federal income tax payable, credit cash

d. Debit federal income tax payable, credit cash

What effect does revenues have on accounts? a. Increasing expenses b. Decreasing liabilities c. Decreasing owner's equity d. Increasing owner's equity

d. Increasing owner's equity

In the modern audit process how does testing occur? a. Checking every transaction b. Checking those transactions indicated by the company c. Checking similar transactions to the last audit d. Sampling

d. Sampling

Which account has an entry when the deposit of state income tax withheld is made? a. EEs' income tax payable b. Payroll tax expenses c. State tax expense d. State income tax payable

d. State income tax payable

What effect do expenses have on an owner's equity?

decrease owner's equity

What effect does revenue have on an owner's equity?

increases owner's equity

Who would be interested in the financial records of a business?

management, stockholders, investors, EEs, and auditors

Payroll expenses may be recorded in one of two ways, functionally or by type of pay. Explain.

If payroll expenses are recorded functionally, entries must be based on the processes supported by the expenses (e.g., manufacturing, sales, administration). This means that the payroll would have to be distributed into different labor distribution expense accounts and a separate Labor Distribution Subsidiary Ledger would have to be kept. Recording payroll expenses by type of pay can be done where the payroll register breaks down EEs' wages into regular and overtime pay.

What is the chart of accounts?

In most companies, a "chart of accounts" lists each account by name and number, with the number being used to identify accounts in an automated system.

What is the purpose of the journal?

The journal is used to list all the necessary information about a transaction in one place. The journal is the first accounting record of business transactions and is therefore referred to as a record of original entry.

A journal entry containing more than one debit or more than one credit is called a compound entry.

True

A separate account is kept for each asset, liability, and owner's equity item that a business has.

True

After all amounts on the balance sheet have been recorded in accounts, the total debits must equal the total credits.

True

After entries have been recorded in the journal, they are posted to the General Ledger.

True

Amounts charged for the sale of services or goods are referred to as revenue.

True

Any accounting period of 12 consecutive months can serve as a company's fiscal year.

True

At the end of each pay period, many businesses enter the hours worked, gross earnings, deductions, and net pay of their EEs in a payroll register.

True

Blank checks should never be stored in the same place as the check signing machine.

True

Entering an amount on the left side of an account is called debiting the account.

True

General ledger accounts are arranged in the order they appear on the chart of accounts.

True

One method of reducing phantom EEs is the physical payout.

True

Payments of expenses decrease assets and decrease owner's equity.

True

Payroll expenses are accrued when the payroll period ending date and the accounting period ending date do not coincide.

True

Revenue can be obtained in the form of cash or accounts receivable.

True

The balance sheet is a financial statement that shows the financial position of a business on a certain date.

True

The purpose of a journal entry is to provide all the essential information about a business transaction.

True

Under generally accepted accounting principles, the realization principle governs the recording of revenue.

True

Explain accrual accounting as it applies to payroll.

Under accrual accounting, revenue is recognized and recorded when earned and expenses are recognized and recorded when incurred. Accrual entries are made at the end of an accounting period to estimate payroll expenses and liabilities incurred between the end of the last payroll period and the accounting period end.

What is a balance sheet?

a statement of the financial position of a business at a specific period in time; an itemized list showing the business's assets, liabilities, and owner's equity.

Name the five types of accounts that are generally used by businesses to classify transactions.

Asset, Liability, Expense, Revenue, and Equity

What are earnings per share?

Earnings per share show the company's net income divided by the weighted average number of outstanding shares of stock.

Accounts payable are assets.

False Accounts payable are liabilities

In a business, the assets must always be equal to the liabilities minus the owner's equity.

False Assets must equal liabilities plus owner's equity.

Paychecks that cannot be delivered should be returned to the payroll department.

False Payroll checks that cannot be delivered should be returned to a department other than payroll and be locked up until the EE returns and can receive the check.

Regardless of the accounting periods or fiscal year that a company uses, payroll taxes do not have to be reported on a calendar year basis.

False Payroll taxes are always reported on a calendar year basis.

The revenue earned during the accounting period appears on the balance sheet.

False Revenue appears on the income statement.

The general ledger is classified as a record of original entry

False The general ledger is the record of final entry.

The income statement summarizes an organization's revenues, expenses, and earnings for the current year only.

False The income statement summarizes the organization's revenues, expenses, and earnings for the current and preceding fiscal years.

The payroll expense journal will debit salaries/wages payable and credit an expense account for the labor cost.

False The payroll expense journal will debit an expense account for the labor costs (salary expense) and credit a liability account (accrued salaries/wages).

The property owned by a business is known as its liabilities.

False The property owned by a business is known as assets.

What reconciliation steps should be taken before filing quarterly and year-end returns?

In preparing to file quarterly Forms 941 and annual Form 940, ERs should verify the following: ~ The FUTA and FICA tax deposits for the quarter equal the current tax rates for each, multiplied by the taxable wages for each, taking into account any wages subject to Additional Medicare tax ~ The total Form 941 tax deposits for the quarter equal the liability section for Form 941 (Line 13 of Form 941 equals Line 16 of Form 941 or the "Total liability for the quarter" line of Schedule B, whichever applies), although monthly depositors may pay their lawful $100 or 2% deposit shortfall with Form 941, in which case total deposits would not equal the liability ~ Total FUTA tax deposits equal Part 4, Line 13 and Part 5, Line 17 of Form 940

Within a payroll system there are checks and balances to ensure the accuracy of a company's financial records and the security of its assets. What are they called?

Internal controls

What are subsidiary ledgers?

Subsidiary ledgers are used for a single type of account and are subordinate to the general ledger. For example, entries documenting payroll expenses and liabilities may be contained in a subsidiary ledger knows as the Payroll Register. Other subsidiary ledgers that contain entries for several accounts might include Accounts Payable, Accounts Receivable, and Fixed Assets.

Some of the ledger accounts of the Morris Bookkeeping Service, owned and operated by Paul Morris, are listed below. Indicate whether these accounts are shown on the income statement or the balance sheet: a. Accounts payable b. Accounts receivable c. Advertising expense d. Cash e. Salaries payable f. Office equipment g. Paul Morris, capital h. Miscellaneous expense i. Office furniture j. Rent expense

a. Accounts payable -- Balance Sheet b. Accounts receivable -- Balance Sheet c. Advertising expense -- Income Statement d. Cash -- Balance Sheet e. Salaries payable -- Balance Sheet f. Office equipment -- Balance Sheet g. Paul Morris, capital -- Balance Sheet h. Miscellaneous expense -- Income Statement i. Office furniture -- Balance Sheet j. Rent expense -- Income Statement

Enter the normal balance (debit or credit) for each of the following accounts: a. Accounts receivable b. Social security tax payable c. Sales d. Sales tax payable e. Accounts payable f. Wage garnishments payable g. Payroll taxes expense h. Professional fees payable i. Freight expense j. Life insurance premiums payable

a. Accounts receivable -- Debit b. Social security tax payable -- Credit c. Sales -- Credit d. Sales tax payable -- Credit e. Accounts payable -- Credit f. Wage garnishments payable -- Credit g. Payroll taxes expense -- Debit h. Professional fees payable -- Credit i. Freight expense -- Debit j. Life insurance premiums payable -- Credit

If a pay period ends August 22, EEs are paid August 29, and the payroll tax deposit is due September 15, when should payroll expenses be recorded? a. August 22 b. August 23 c. August 29 d. September 15

a. August 22

Classify each item that follows as an asset, liability, or owner's equity: a. Cash b. Loan payable to a bank c. Delivery equipment d. Account payable to a creditor e. Office furniture f. Owner's financial interest g. Petty cash h. Mortgage payable to a bank i. FUTA taxes payable

a. Cash -- Asset b. Loan payable to a bank -- Liability c. Delivery equipment -- Asset d. Account payable to a creditor -- Liability e. Office furniture -- Asset f. Owner's financial interest -- Owner's Equity g. Petty cash -- Asset h. Mortgage payable to a bank -- Liability i. FUTA taxes payable -- Liability

How are marketable securities classified? a. Current assets b. Tangible assets c. Intangible assets d. Current liabilities

a. Current assets

What financial statement shows the net income or net loss of a business? a. Income statement b. Balance sheet c. Statement of owner's equity d. Statement of cash flow

a. Income statement

Where are business transactions first recorded? a. Journal b. General ledger c. Trial balance d. Balance sheet

a. Journal

When each transaction is described by a business document that proves the transaction did occur, which accounting concept is being applied? a. Objectivity b. Cost c. Matching d. Business entity

a. Objectivity

What account is credited for child support withheld? a. Child support expense b. Child support payable c. Accounts payable d. Payroll taxes expense

b. Child support payable

Which of the following accounts describes the legal obligation of a business to pay its debts? a. Asset b. Liability c. Owner's equity d. Expenses

b. Liability

When revenue and expenses are recorded in the same accounting period, which accounting concept is being applied? a. Business entity b. Matching c. Realization d. Continuing concern

b. Matching

What document records payroll data for each payroll period? a. Earnings record b. Payroll register c. Payroll ledger d. Accounts receivable ledger

b. Payroll register

What is the process of transferring entries from the journal to the general ledger called? a. Journalizing b. Posting c. Footing d. Balancing

b. Posting

When the same accounting concepts are applied in the same way in each accounting period, which accounting concept is being applied? a. Objectivity b. Continuing concern c. Consistency d. Business entity

c. Consistency

In what account is the payment of salaries and wages recorded? a. Asset b. Liability c. Expense d. Revenue

c. Expense

FUTA and SUTA taxes payable are what types of accounts? a. Owner's equity b. Assets c. Liabilities d. Net worth

c. Liabilities

What is a common name for a journal? a. Record of final entry b. Record of secondary entry c. Record of original entry d. Record of cross-reference

c. Record of original entry

What is the difference between the debits and credits to an account called? a. Single-entry b. Double-entry c. Cross-footing d. Balance

d. Balance

What is the role of an internal auditor?

to review the efficiency of the organization's internal control procedures and to identify weaknesses in the controls.

What is the purpose of an external audit?

~ To determine the accuracy of financial statements ~ To depict the company's financial condition and determine whether the notes to financial statements accurately summarize the company's accounting policies and procedures ~ To guard against any possible conflict of interest ~ To safeguard the company's assets ~ To provide an objective opinion as to the fairness of the financial statements