Patchogue-Medford High School
Accounting I – Chapter 12 Notes
Chapter 12 – Payroll Accounting Page 310
Objective: Students will be able to demonstrate their knowledge of payrolls, wages, and withholdings by calculating net pay. They will prepare a payroll, payroll register, payroll check, payroll forms, and an employee payroll earnings record.
Payroll System – Ensures accurate and timely salary payments to the employee. It also produces reports for reporting to federal and state authorities.
Payroll records – Include the gross earnings, withholdings and net pay of all employees for that pay period. The pay period is the amount of time over which an employee is paid. It can be;
The payroll system achieves two goals:
- The collection and processing of all information needed to prepare and issue a payroll check
- The generation of payroll records for reports used by accounting and the government.
The custodian of the payroll system is usually the Payroll Clerk. The clerk’s responsibilities include preparing the payroll which include:
- Paying wages on time
- Paying the correct amount
- Withholding the correct amounts
- Updating the payroll records
- Submitting reports; W-2, W-4, to whom they go to
- Pay payroll taxes
Payrolls start with Gross Earnings; the amount of money earned.
- Earned can be wages or salary
- Can be combined with O/T (with wages) or bonus for both
Three types of pay; Salary, Wages, & Commissions.
1. Salary – A fixed amount of money paid to an employee each pay period. Hours worked do not affect amount paid to the employee.
2. Wage – Money paid to an employee for a period of work based on hours worked and a rate of per hour. Overtime (O/T) can also be figured into the pay. This is where minimum wage comes in.
(In 2011 it is $7.50/hour)
Time Card (page 315) – A record of hours worked times the rate of pay. Punch in/ Punch out. Shows hourly wages and hours worked
Overtime – (page 316) -Additional wages worked usually over 40 hours in a week but can be for over 8 hours in a day. ie. Time and a half- this is an hourly wage plus another half of that wage $10 per hour at time and a half would be $15 per hour.
Electronic Badge Reader (EBR) – reads start/stop time that an employee works.
3. Commissions – (page 316) – pay based on a percentage of sales made by an employee.
Do Problem 12-1, Calculating gross earnings, page 317, WB 262
- Amount subtracted from gross earnings to arrive at net pay.
- Withholding Allowances – Reduces the amount of deductions or tax to be withheld from the pay.
Types of Deduction:
Federal Income Tax – (FIT) - Amount withheld by the employer paid to the federal government on behalf of the employee based on the number of reported exemptions (dependents) the employee claims on the W-4 form (pg 319). You may report as many as you would like. The greater number of deductions the lower amount of FIT withheld. This is based on a chart provided by the Gov’t. When you file your tax return based on the prior year you MUST true up and report the correct amount of dependents you are claiming. In addition you must have paid 90% of the tax liability you owe by Dec 31 of the tax year. A W-2 form is sent earnings and the withholdings made on the employee’s behalf. A copy is also sent to the Gov’t.
New York State Income Tax – (NYSIT) – Amount withheld by the state based on deductions on a table at a lower rate than FIT. Treated the same as FIT. Not all states have state income tax.
FICA – Federal Insurance Contribution Act – created in 1935 by FDR to combat the effects of the Great Depression. This funds Social Security and Medicare. The amount paid (withheld) by the employee is matched by the employer.
Employee – 6.2% for SS Employer – 6.2%
(This deduction stops when the employee earnings reach 97,500)
Employee – 1.45 for Medicare
Other types of deductions:
Union Dues Life Insurance Health Insurance
Pensions, IRA’s Savings Bonds Charitable contributions
401k – an employee contributes a small portion based on gross pay. The employee may match it and have the amount deducted prior to taxes are calculated to reduce current earnings. Taxes will be paid at the time of withdrawal. Withdrawal is eligible at 59 ½.
Do problem 12-2, Determining tax, page 322, WB pg 262.
Payroll Records (pg 323)
- Payroll Register – A form that summarizes all of the information about an employees earnings for each pay period.
- Gross pay – amount earned before any deductions
- Net Pay – actual amount of money paid to an employee after deductions. Often referred to as “take-home pay” (pg 325)
- Deductions – all amounts taken out of gross pay
- Employee earnings record – contains all payroll information related to that employee. It has Accumulated Earnings – YTD gross earnings and deductions. (pg. 327)
Direct Deposit – Net pay goes directly into your bank account via EFT by employer. You would only receive a pay stub instead of a paycheck.
Do problem 12-4, Prepare a payroll check, page 328, WB PG 263.
Terms Page 330
Questions Page 331
Prob. 12-5 Calculating Gross Pay TB pg 333 WB pg 264 PC 285 Q293
Prob. 12-6 Payroll Register TB pg 333 WB pg 265
Prob. 12-7 Payroll cks. & earnings TB pg 334 WB pg 266 PC 288
(Prob. 12-8 Preparing the payroll TB pg 335 WB pg 271 PC 290)
Prob. 12-9 Payroll register TB pg 336 WB pg 281 PC 291
Prob. 12-10 Gross earnings TB pg 337 WB pg 283 PC 292