Intermediate Accounting A.ppt by censhunay


									Introductory Accounting B

    B11-A291 / B11-A027
      Mark Binder, CA
        Chapter 11
          Learning Objectives
1.   List the taxes and other items frequently withheld
     from employee’s wages
2.   Make the calculation as necessary to prepare a
     payroll register and prepare the entry to record
     payroll liabilities
3.   Prepare journal entries to record the payments to
     employees and explain the operation of a payroll
     bank account
4.   Calculate the payroll costs levied on employers and
     prepare the entries to record the accrual and
     payment of these amounts
5.   Calculate and record employee fringe benefit costs
     and show the effect of these items on the total cost
     of employing labour
   Employee’s Withholdings
• Employers are required to withhold
  money from employees for:
• Income Tax
• Canada Pension Plan (CPP)
• Employment Insurance
              Income Tax
• Employers withhold income tax from
• The amount depends on the individuals tax
• Employee should fill out a TD1.
• There are now two TD1 forms:
• One for the Federal.
• One for the Provincial.
     Employment Insurance
• All employees must contribute to the
  Employment Insurance.
• For our purposes the amount is 2.4% of
  insured wages.
• Insurable wages are more than 15 hours per
  week and earning more than $142.
• Employers match the employee withholdings
  at a rate of 1.4 for most industries.
    Employment Insurance
• The maximum contribution in a year is
  $1,310.40 which is based on $39,000.
• Employers have the responsibility to
  provide an Record of Employment
  (ROE) upon interruption of employment.
• Keep payroll records which documents
  insurable earnings.
     Canada Pension Plan
• Everyone, including self employed
  persons, outside of Quebec must
  contribute to the CPP.
• Employees contribute 3.9% of their
• Employers match these amounts dollar
  for dollar.
      Canada Pension Plan
• Self employed individuals must pay both the
  employers and employees portion.
• The contributon is based on 3.9% of
  pensionable earnings.
• There is also a basic exemption of $3,500.
• Maximum contribution is $1,329.90 based on
  $37,600 in pensionable earnings.
• If an employee had gross wages of
  $1,000 paid biweekly the calculation for
  EI would be:
$1,000 x 2.4% = $24.
• The CPP calculation would be:
[$1000 – ($3,500/26)] x 3.9% = $33.75.
• Notice that the base of $3,500 is divided by
  the number of pay periods in the year and
  then subtracted from gross earnings.
• The result is then multiplied by 3.9%.
• Some systems do not contribute until a
  person has $3,500 in earnings.
• Most systems stop contributions when
  maximums are reached.
• In some cases calculations are necessary to
  be done e.g. commission sales people.
• In most cases companies use payroll tables
  to determine the amount to be paid.
• The book has reproduced the payroll tables
  for CPP, EI, and Tax on pages 567 and 568.
• Note that to use the tax table you need to
  know the employees claim code which is
  determined on the TD1.
• For most employers remittances are
  done once a month.
• The deadline is the 15th day following
  the end of the month.
• So, remittances for June will be due
  July 15th.
   Journal Entries for Payroll
• Assume the following information:
• The gross wages for employees for the
  month are $2,000
• EI withholdings are $200
• CPP withholdings are $300
• Tax withholdings are $500
   Journal Entries for Payroll
• The journal entry to record the payroll is:

Dr: Salary expense            $2,000
  Cr: CPP Payable                         $200
  Cr: EI Payable                          $300
  Cr: Employee’s income
            tax payable                   $500
  Cr: Payroll Payable                     $1,000
     Payroll Journal Entries
• Notice that all withheld amounts go to
  various payable accounts, including
• Many companies have a special bank
  account only for payroll.
• The net amount of pay is transferred to
  that account and the actual payroll
  cheques are then produced.
     Payroll Journal Entries
• The other payroll payable amounts do
  not have to be paid until the 15th of the
  month so they are recorded temporarily
  to these payroll payable accounts.
• It is also necessary to compute the
  employers portion prior to remittance to
  the government.
         Benefits Expense
• The journal entry to record the
  employers portion is:
Dr: Benefits expense            $620
  Cr: CPP Payable                    $200
  Cr: EI Payable ($300 x 1.4)        $420
           Other Payroll
• It is also possible to have other
  deductions which would require
  matching by the employer.
• Examples include company pension
  plan, company health plan, etc.
• Employers may also have to pay
  Workers Compensation Board
           Other Payroll
• In the case of Workers Compensation
  Board, no amount is paid by the
• The text uses an unusual calculation for
• If an employee worked 45 hours in a
  week where standard hours are 40:
  – 40 regular hours
  – 5 overtime hours
• If overtime is paid at time plus ½ we
  would calculate this as:
• 40 hours x pay rate = regular pay
• 5 overtime hours x pay rate x 11/2 =
  overtime pay.

• In the book the calculation is:
• 45 hours x regular pay = regular
• 5 hours overtime x overtime premium
  (50% x pay rate = overtime.

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