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					 Chapter Eight

Employee Earnings
 and Deductions
        Performance Objectives

1. Understand the role of laws that affect
   payroll deductions and contributions
2. Calculate total earnings based on an
   hourly, piece-rate, or commission
   basis
3. Determine deductions using tables of
   employees’ income tax withholding



      Accounting Is Fun!                     8-2
        Performance Objectives

4. Complete a payroll register
5. Journalize the payroll entry from a
   payroll register
6. Maintain employees’ individual
   earnings records




      Accounting Is Fun!                 8-3
        Employer Requirements

• To withhold federal and state taxes from
  employees’ paychecks
• To pay the withholdings (as well as
  other payments) to government
  agencies before specific deadlines
• To submit federal and state reports on
  official forms
• This makes payroll accounting very
  important!

      Accounting Is Fun!                     8-4
         Required Payroll Records

1.  Employee personal information
   – Name
   – Address
   – Social Security number
   – Date of birth
2. Data on wage payments
   – Dates and amounts of payments
   – Payroll periods
3. Amount of taxable wages paid
   – Dates and amounts earned year to date for the calendar
      year involved
4. Amount of taxes withheld for each employee by pay period


         Accounting Is Fun!                                   8-5
                       Calendar Year

• A twelve-month period beginning on
  January 1 and ending on December 31
  of the same year




      Accounting Is Fun!                8-6
Employees and Independent Contractors

 • Employee
   – Under ―direction and control‖ of employer
 • Independent contractor
   – Someone who is engaged for a definite job or
     service
   – Not under ―direction and control‖ of employer
   – Decides how to do his or her own work
 • Payments to independent contractors not
   subject to withholding or payroll taxes


        Accounting Is Fun!                           8-7
                         Objective 1

Understand the role of laws that affect
payroll deductions and contributions




    Accounting Is Fun!                    8-8
Laws Affecting Employees’ Pay Deductions

  • Fair Labor Standards Act
    – The act of 1938 that provides for minimum
      standards for wages and overtime,
      including provisions related to child labor
      and equal pay for equal work
  • Current Tax Payment Act
    – An act to require employers to withhold
      and pay to the Internal Revenue Service
      employee funds

        Accounting Is Fun!                          8-9
Laws Affecting Employees’ Pay Deductions

  • FICA Tax (employees’ share)
    – Social Security Act of 1935 and its
      amendments provide benefits for retired
      workers, their spouses and minor children,
      disability insurance, Medicare, and
      supplemental security income
    – Employees contribute 6.2 percent on first
      $84,900 earned in a calendar year for
      Social Security
    – Employees contribute 1.45 percent on all
      earnings in calendar year for Medicare
        Accounting Is Fun!                         8 - 10
Laws Affecting Employer’s Payroll Tax
            Contributions

• Federal Insurance Contribution Act
  (FICA)
• State Unemployment Tax Act (SUTA)
• Federal Unemployment Tax Act (FUTA)
• Workers’ compensation laws




      Accounting Is Fun!                8 - 11
                           FICA Taxes

• Social Security taxes plus Medicare
  taxes, paid by both employee and
  employer under the provisions of the
  Federal Insurance Contributions Act
• Employer matches employee
  contribution




      Accounting Is Fun!                 8 - 12
State Unemployment Tax Act (SUTA)

• A tax levied only on the employer in
  most states
• Rates differ among the various states;
  however, they are generally 5.4 percent
  or higher on the first $7,000 of total
  earnings paid to each employee during
  the calendar year
• Proceeds used to pay subsistence
  benefits to unemployed workers
      Accounting Is Fun!                    8 - 13
Federal Unemployment Tax Act (FUTA)

 • A tax levied only on the employer, equal
   to 0.8 percent of the first $7,000 of total
   earnings paid to each employee during
   the calendar year
 • This tax is used to support government-
   run employment offices throughout the
   country



        Accounting Is Fun!                       8 - 14
    Workers’ Compensation Laws

• Laws that protect employees and
  dependents against losses due to death
  or injury incurred on the job




      Accounting Is Fun!                   8 - 15
                   Payment Periods

• Weekly
• Bi-weekly
  – 26 times a year
• Semimonthly
  – 24 times a year
• Monthly



      Accounting Is Fun!             8 - 16
                               Earnings

• Wages
   – Contract states hourly, weekly, or piecework rate of pay
• Salary
   – Contract states monthly or yearly earnings
• Overtime—generally 1 ½ pay, minimums per FLSA
• Supplemental pay
   – Commissions
   – Bonuses
   – Cost-of-living adjustments
   – Profit sharing
• Paid by
   – Check or cash
   – Other assets (recorded at market value, or fair value)


          Accounting Is Fun!                                    8 - 17
     Performance Objective 2

Calculate total earnings based on an
hourly, piece-rate, or commission basis




    Accounting Is Fun!                    8 - 18
                                                   Payroll
  • In earlier chapters we have seen:
                                         General Journal                                                         Page 4
Line #




                                                                            Post.
              Date    Description                                           Ref.     Debit              Credit
         1   2005
         2 June    24 Wages Expense                                            511           1,400.00
         3             Cash                                                    111                           1,400.00
         4               Paid wages of part-time employees (Ck. No. 3496)


• The $1,400.00 is really gross pay before deductions
• Gross pay (or earnings)
             – Total amount before deductions
• Deductions
             – Amounts taken out of an employee’s paycheck each pay period
• ―Take home pay‖ or net pay
             – Gross pay minus deductions

                          Accounting Is Fun!                                                                       8 - 19
                     Time Card




Accounting Is Fun!               8 - 20
   Calculate Hourly Wages and Overtime
                                        Assumptions
                             Hourly Rate                       $22.84
                             Overtime Multiple                 150%

                                       Overtime by Day Method
Regular Hour Worked            40       Hours x Hourly Rate                               $913.60

Overtime Hours Worked
 Monday - Wednesday             0       Hours x Hourly Rate x Multiple   =                        0
 Thursday                       2       Hours x Hourly Rate x Multiple   =                 $ 68.52
 Friday                         1       Hours x Hourly Rate x Multiple   =                    34.26
 Saturday                       3       Hours x Hourly Rate x Multiple   =                  102.78
 Total Gross Earnings                                                                     $1,119.16

                                      Overtime Premium Method
Regular Pay                    46      Total Hours x Hourly Rate                          $1,050.64
Overtime Premium               6       Overtime Hours x (Multiple - 100%) x Hourly Rate       68.52
 Total Gross Earnings                                                                     $1,119.16



                 Accounting Is Fun!                                                            8 - 21
   Calculate Hourly Overtime for Salary
                                  Assumptions
          Monthly Salary                               $2,250.00
          Overtime Multiple                                   1.5
          Hours Worked in One Week                             40
          Overtime Hours                                        4

                     (1) Calculate Hourly Rate First
Calculate Yearly Pay         Monthly Salary x 12                $27,000.00
Calculate Weekly Pay         Yearly Salary / 52                   $519.23
Calculate Hourly Pay         Weekly Salary / 40                     $12.98


                    (2) Then Calculate Overtime
Regular Pay                Hours x Hourly Rate            $         519.20
Overtime Pay               Hours x Hourly Rate x Multiple $          77.88
 Total Gross earnings                                     $         597.08


             Accounting Is Fun!                                         8 - 22
                          Piece Rate



Piece rate per boomerang finished         $2.12
Number of boomerangs per week               500
Total gross pay for the week
(Piece rate x number of boomerangs)    $1,060.00




     Accounting Is Fun!                            8 - 23
                                        Commission


                   January               Commission on Sales         Base Salary      Gross Pay
                    Sales              (Jan. Sales x Commission    (from Contract) (Comm. + Base)
                                                 Rate)
Vicky Chan          $125,000                                $4,063          $1,725           $5,788
Jamal Robertson      $97,855                                $3,180          $1,725           $4,905
Walt Dickenson       $81,250                                $2,641          $1,725           $4,366
Sue Wong             $95,500                                $3,104          $1,725           $4,829
Tom Carolyn          $78,550                                $2,553          $1,725           $4,278
Totals

Commission
Rate
         3.25%




                  Accounting Is Fun!                                                           8 - 24
    Deductions from Total Earnings
1. Federal income tax withholding
2. State income tax withholding
3. FICA tax (Social Security and Medicare),
    employee’s share
4. Purchase of U.S. savings bonds
5. Union dues
6. Insurance deductions (medical or life)
7. Charitable contributions
8. Pension contributions
9. Credit union
   – Automatic savings
   – Automatic loan repayment
10. Other deductions possible
        Accounting Is Fun!                    8 - 25
  Employees’ Federal Income Tax
Withholding: Employer Requirements

• Withhold federal income taxes from
  employees’ paychecks
• Pay the withheld federal income taxes
  to the IRS
• Keep required records




      Accounting Is Fun!                  8 - 26
Basis of Federal Income Tax Withholding

 • Taxable earnings           • Withholding allowance
    – The amount of an           – Amount of earnings that
      employee’s earnings          are exempt from federal
      subject to a tax             income tax
 • Marital status                – How many?
                                     • One for personal
                                     • One for spouse
 • Number of withholding             • One for each dependent
   allowances claimed
                              • Exemption
                                 – Amount of yearly
                                   earnings that are not
                                   taxed



         Accounting Is Fun!                                     8 - 27
 Employee’s Withholding Allowance
      Certificate (Form W-4)

• A form that specifies the number of
  allowances claimed by each employee
• Gives the employer the authority to
  withhold money for an employee’s
  federal income taxes and FICA taxes
• Must be filled out by every employee




      Accounting Is Fun!                 8 - 28
Accounting Is Fun!   8 - 29
                            Circular E

• Actual book or downloadable files to use in
  spreadsheet or accounting program provided
  free of charge by IRS to employers
• Contains withholding tables
  – Federal income tax
  – FICA
     • Social Security
     • Medicare
• Lists rules for employer’s deposits
• Lists requirements for submitting reports

       Accounting Is Fun!                       8 - 30
        Wage-Bracket Tax Tables

• Tables providing the amounts to be deducted
  for income taxes based on earnings, marital
  status, and number of allowances claimed
• Payment periods covered
  –   Monthly
  –   Semimonthly
  –   Biweekly
  –   Weekly
  –   Daily



        Accounting Is Fun!                      8 - 31
Using the Tables to Determine Deductions

  • Step 1: Select correct table for payment
    period and marital status
  • Step 2: Locate gross pay in first two columns
  • Step 3: Find column for number of
    withholding allowances
  • Intersection shows amount of federal income
    tax to withhold from paycheck
  • Be careful of:
    – ―At least‖
    – ―But less than‖


         Accounting Is Fun!                         8 - 32
    State Income Tax Withholding

• State tables
  or
• Percentage of federal income tax
  deduction
  – Textbook assumes that employee’s state
    income tax deduction is 20% of the federal
    income tax deduction




      Accounting Is Fun!                         8 - 33
                             FICA Taxes

• Social Security                 • Medicare Taxes
  Taxes                           • Federal taxes levied
• Federal taxes levied              on employees and
  on employees and                  employers
  employers
• Proceeds used for               • Proceeds used for
  – Pension payments
                                    medical insurance
    after a worker has              for eligible people
    reached 62 years                age 65 or over
  – Disability benefits for
    disabled worker and
    dependents

        Accounting Is Fun!                                 8 - 34
                            FICA Taxes

• Social Security rate = 6.2%
  (number equivalent = .062)
  – Only the first $84,900 of earnings are taxed
• Medicare rate = 1.45%
  (number equivalent = .0145)
  – All earnings are taxed
• Applied to gross earnings during a calendar
  year
• Calculated separately because of the
  different upper limits for two types of taxes
       Accounting Is Fun!                          8 - 35
     Calculating FICA Taxes

                       Vicky Wise
Week Earnings =                      $1,119.16
Cumulative Earnings to Date =       $32,890.00
FICA
  Social Security Maximum           $84,900.00
  Social Security Rate                   6.20%
  Medicare Rate                          1.45%


 FICA Social Security Deduction

 FICA Medicare Deduction


  Accounting Is Fun!                             8 - 36
     Calculating FICA Taxes

                       Vicky Wise
Week Earnings =                      $1,119.16
Cumulative Earnings to Date =       $32,890.00
FICA
  Social Security Maximum           $84,900.00
  Social Security Rate                   6.20%
  Medicare Rate                          1.45%


 FICA Social Security Deduction
 ($1,119.16*0.062) =                   $69.39
 FICA Medicare Deduction
 (Earnings*Rate)                       $16.23

  Accounting Is Fun!                             8 - 37
     Calculating FICA Taxes

                       Tommy Webster
Week Earnings =                         $4,000.00
Cumulative Earnings to Date =          $81,233.00
FICA
  Social Security Maximum              $84,900.00
  Social Security Rate                      6.20%
  Medicare Rate                             1.45%


 FICA Social Security Deduction

 FICA Medicare Deduction


  Accounting Is Fun!                                8 - 38
     Calculating FICA Taxes

                       Tommy Webster
Week Earnings =                         $4,000.00
Cumulative Earnings to Date =          $81,233.00
FICA
  Social Security Maximum              $84,900.00
  Social Security Rate                      6.20%
  Medicare Rate                             1.45%


 FICA Social Security Deduction
 ($84,900 - $81,233)*0.062 =             $227.35
 FICA Medicare Deduction
 (Earnings*Rate)                          $58.00

  Accounting Is Fun!                                8 - 39
     Calculating FICA Taxes

                       Arwin King
Week Earnings =                      $1,050.00
Cumulative Earnings to Date =       $85,525.00
FICA
  Social Security Maximum           $84,900.00
  Social Security Rate                   6.20%
  Medicare Rate                          1.45%


 FICA Social Security Deduction

 FICA Medicare Deduction


  Accounting Is Fun!                             8 - 40
     Calculating FICA Taxes

                       Arwin King
Week Earnings =                       $1,050.00
Cumulative Earnings to Date =        $85,525.00
FICA
  Social Security Maximum            $84,900.00
  Social Security Rate                    6.20%
  Medicare Rate                           1.45%


 FICA Social Security Deduction
 ($85,525 > $84,900, thus: no tax)       $0.00
 FICA Medicare Deduction
 (Earnings*Rate)                        $15.23

  Accounting Is Fun!                              8 - 41
           Unemployment Taxes

• Unemployment taxable earnings
  represent remaining untaxed earnings
  up to state and federal maximum
• Not paid by employee in most states
• Paid by employer on the employee’s
  behalf




      Accounting Is Fun!                 8 - 42
     Performance Objective 4

Complete a payroll register




    Accounting Is Fun!         8 - 43
                     Payroll Register

• A multicolumn form prepared for each
  payroll period listing the earnings,
  deductions, and net pay for each
  employee




      Accounting Is Fun!                 8 - 44
        Payroll Register for Week Ended:
                 October 7, 2005
                                          Beginning                                     Earnings                                    Ending                           Taxable Earnings
                         Total            Cumulative                                                                              Cumulative                              Social
        Name             Hours             Earnings                 Regular             Overtime               Total               Earnings           Unemployment       Security
Asino, Matte E.                    46         32,890.00                  913.60                205.56             1,119.16             34,009.16                0.00         1,119.16
Boritsky, Olga                     45           6,192.00                 619.20                116.10                735.30             6,927.30              735.30            735.30
Dray, Greg G.                      49           6,846.00                 684.60                231.05                915.65             7,761.65              154.00            915.65
Foulkes, Bob L.                    40         38,637.00                1,073.25                  0.00             1,073.25             39,710.25                0.00         1,073.25
Groyer, Milli K.                   40         68,000.00                1,888.89                  0.00             1,888.89             69,888.89                0.00         1,888.89
Kramer, Ada A.                     40         68,100.00                1,891.67                  0.00             1,891.67             69,991.67                0.00         1,891.67
Minkowitz, John L.                 55         36,840.00                1,023.33                575.63             1,598.96             38,438.96                0.00         1,598.96
Orleons, Janet C.                  40         45,783.00                1,271.75                  0.00             1,271.75             47,054.75                0.00         1,271.75
Pinkovich, Mark S.                 44         46,970.00                1,304.72                195.71             1,500.43             48,470.43                0.00         1,500.43
Romero, Sheila J.                  45         54,978.00                1,527.17                286.34             1,813.51             56,791.51                0.00         1,813.51
Tivoli, Jake T.                    40         42,078.00                1,168.83                  0.00             1,168.83             43,246.83                0.00         1,168.83
Wilson, Sharlet D.                 52         84,600.00                1,990.56                895.68             2,886.24             87,486.24                0.00            300.00
Totals                                       531,914.00               15,357.57              2,506.07           17,863.64             549,777.64              889.30        15,277.40


                                                                         Deductions                                                                        Payments
                 Federal            State           Social                                 Medical                                     Total              Net        Check
               Income Tax        Income Tax       Security Tax        Medicare Tax        Insurance              Other               Deductions          Amount        #
                      150.00              30.00             69.39               16.23             11.19                                      276.81           842.35    931
                         80.00            16.00             45.59               10.66             11.03   UW              12.00              175.28           560.02    932
                      107.00              21.40             56.77               13.28             13.73   UW              15.00              227.18           688.47    933
                      123.00              24.60             66.54               15.56             16.10                                      245.80           827.45    934
                      394.00              78.80            117.11               27.39             28.33   UW                                 645.63         1,243.26    935
                      395.00              79.00            117.28               27.43             28.38   UW              10.00              657.09         1,234.58    936
                      312.00              62.40             99.14               23.18             23.98   UW              12.00              532.70         1,066.26    937
                      193.00              38.60             78.85               18.44             19.08   UW              20.00              367.97           903.78    938
                      284.00              56.80             93.03               21.76             22.51                                      478.10         1,022.33    939
                      372.00              74.40            112.44               26.30             27.20   AR              50.00              662.34         1,151.17    940
                      164.00              32.80             72.47               16.95             17.53   UW              25.00              328.75           840.08    941
                      665.00             133.00             18.60               41.85             41.44   UW              30.00              929.89         1,956.35    942
                    3,239.00             647.80            947.21             259.03             260.50                  174.00           5,527.54         12,336.10



 Let’s look at the different sections of the payroll register

                           Accounting Is Fun!                                                                                                                                            8 - 45
       Compare Beginning Cumulative Earnings with
      Maximums for Social Security and Unemployment


                     Total          Beginning
        Name         Hours          Cumulative
Asino, Matte E.               46        32,890.00
Boritsky, Olga                45         6,192.00
Dray, Greg G.                 49         6,846.00
Foulkes, Bob L.               40        38,637.00
Groyer, Milli K.              40        68,000.00
Kramer, Ada A.                40        68,100.00
Minkowitz, John L.            55        36,840.00
Orleons, Janet C.             40        45,783.00
Pinkovich, Mark S.            44        46,970.00
Romero, Sheila J.             45        54,978.00
Tivoli, Jake T.               40        42,078.00
Wilson, Sharlet D.            52        84,600.00
Totals                                 531,914.00




                       Accounting Is Fun!           8 - 46
                 Calculate Regular and Overtime Earnings


                     Total          Beginning                     Earnings
        Name         Hours          Cumulative      Regular       Overtime        Total
Asino, Matte E.               46        32,890.00        913.60          205.56      1,119.16
Boritsky, Olga                45         6,192.00        619.20          116.10         735.30
Dray, Greg G.                 49         6,846.00        684.60          231.05         915.65
Foulkes, Bob L.               40        38,637.00      1,073.25            0.00      1,073.25
Groyer, Milli K.              40        68,000.00      1,888.89            0.00      1,888.89
Kramer, Ada A.                40        68,100.00      1,891.67            0.00      1,891.67
Minkowitz, John L.            55        36,840.00      1,023.33          575.63      1,598.96
Orleons, Janet C.             40        45,783.00      1,271.75            0.00      1,271.75
Pinkovich, Mark S.            44        46,970.00      1,304.72          195.71      1,500.43
Romero, Sheila J.             45        54,978.00      1,527.17          286.34      1,813.51
Tivoli, Jake T.               40        42,078.00      1,168.83            0.00      1,168.83
Wilson, Sharlet D.            52        84,600.00      1,990.56          895.68      2,886.24
Totals                                 531,914.00     15,357.57        2,506.07    17,863.64




                       Accounting Is Fun!                                                        8 - 47
                     Calculate Ending Cumulative Earnings


                      Total          Beginning                     Earnings                         Ending
        Name          Hours          Cumulative      Regular       Overtime        Total          Cumulative
Asino, Matte E.                46        32,890.00        913.60          205.56      1,119.16         34,009.16
Boritsky, Olga                 45         6,192.00        619.20          116.10         735.30         6,927.30
Dray, Greg G.                  49         6,846.00        684.60          231.05         915.65         7,761.65
Foulkes, Bob L.                40        38,637.00      1,073.25            0.00      1,073.25         39,710.25
Groyer, Milli K.               40        68,000.00      1,888.89            0.00      1,888.89         69,888.89
Kramer, Ada A.                 40        68,100.00      1,891.67            0.00      1,891.67         69,991.67
Minkowitz, John L.             55        36,840.00      1,023.33          575.63      1,598.96         38,438.96
Orleons, Janet C.              40        45,783.00      1,271.75            0.00      1,271.75         47,054.75
Pinkovich, Mark S.             44        46,970.00      1,304.72          195.71      1,500.43         48,470.43
Romero, Sheila J.              45        54,978.00      1,527.17          286.34      1,813.51         56,791.51
Tivoli, Jake T.                40        42,078.00      1,168.83            0.00      1,168.83         43,246.83
Wilson, Sharlet D.             52        84,600.00      1,990.56          895.68      2,886.24         87,486.24
Totals                                  531,914.00     15,357.57        2,506.07    17,863.64         549,777.64




                        Accounting Is Fun!                                                             8 - 48
                Calculate Taxable Earnings
                         Taxable Earnings
                              Social
          Unemployment       Security        Medicare
                    0.00         1,119.16        1,119.16
                  735.30            735.30         735.30
                  154.00            915.65         915.65
                    0.00         1,073.25        1,073.25
                    0.00         1,888.89        1,888.89
                    0.00         1,891.67        1,891.67
                    0.00         1,598.96        1,598.96
                    0.00         1,271.75        1,271.75
                    0.00         1,500.43        1,500.43
                    0.00         1,813.51        1,813.51
                    0.00         1,168.83        1,168.83
                    0.00            300.00       2,886.24
                  889.30        15,277.40       17,863.64

We calculate the amount of earnings that are taxable for the
unemployment taxes. We will use this amount in Chapter 9
to calculate the tax.
          Accounting Is Fun!                                8 - 49
                                Calculate Deductions
                                                             Deductions
    Federal              State            Social                             Medical                                 Total
  Income Tax          Income Tax        Security Tax      Medicare Tax      Insurance             Other            Deductions
         150.00                30.00              69.39             16.23           11.19                                  276.81
            80.00              16.00              45.59             10.66           11.03   UW             12.00           175.28
         107.00                21.40              56.77             13.28           13.73   UW             15.00           227.18
         123.00                24.60              66.54             15.56           16.10                                  245.80
         394.00                78.80             117.11             27.39           28.33                                  645.63
         395.00                79.00             117.28             27.43           28.38   UW             10.00           657.09
         312.00                62.40              99.14             23.18           23.98   UW             12.00           532.70
         193.00                38.60              78.85             18.44           19.08   UW             20.00           367.97
         284.00                56.80              93.03             21.76           22.51                                  478.10
         372.00                74.40             112.44             26.30           27.20   AR             50.00           662.34
         164.00                32.80              72.47             16.95           17.53   UW             25.00           328.75
         665.00               133.00              18.60             41.85           41.44   UW             30.00           929.89
       3,239.00               647.80             947.21           259.03           260.50                 174.00        5,527.54




                                       Calculate,                                                    Given
 From                20% of                               Calculate,
                                         6.2%                                  Given             UW = United Way
Tables              Fed. Tax                                 1.45%
                                        84,900                                                      AR = A/R


                         Accounting Is Fun!                                                                                8 - 50
    Total Earnings – Total Deductions = Net Pay
                         &
           Two Different Wages Expenses
Earnings                                             Payments                Expense Account Debited
                                    Total           Net           Ck.         Sales           Office


                    …
     Total                        Deductions       Amount         No.     Wages Expense   Wages Expense
        1,119.16                          276.81        842.35   931.00          1,119.16
           735.30                         175.28        560.02   932.00            735.30
           915.65                         227.18        688.47   933.00            915.65
        1,073.25                          245.80        827.45   934.00                           1,073.25
        1,888.89                          645.63      1,243.26   935.00          1,888.89
        1,891.67                          657.09      1,234.58   936.00                           1,891.67
        1,598.96                          532.70      1,066.26   937.00          1,598.96
        1,271.75                          367.97        903.78   938.00                           1,271.75
        1,500.43                          478.10      1,022.33   939.00          1,500.43
        1,813.51                          662.34      1,151.17   940.00          1,813.51
        1,168.83                          328.75        840.08   941.00          1,168.83
        2,886.24                          929.89      1,956.35   942.00          2,886.24
      17,863.64                        5,527.54      12,336.10                  13,626.97         4,236.67




                    Accounting Is Fun!                                                              8 - 51
     Performance Objective 5

Journalize the payroll entry from a
payroll register




    Accounting Is Fun!                8 - 52
Journalize the Payroll Entry from a Payroll
                 Register
                                               Beginning                                    Earnings                                    Ending                        Taxable Earnings
                            Total              Cumulative                                                                             Cumulative                           Social
        Name                Hours               Earnings                Regular             Overtime                Total              Earnings        Unemployment       Security
Asino, Matte E.                         46         32,890.00                 913.60                205.56              1,119.16            34,009.16             0.00         1,119.16
Boritsky, Olga                          45           6,192.00                619.20                116.10                 735.30            6,927.30           735.30            735.30
Dray, Greg G.                           49           6,846.00                684.60                231.05                 915.65            7,761.65           154.00            915.65
Foulkes, Bob L.                         40         38,637.00               1,073.25                  0.00              1,073.25            39,710.25             0.00         1,073.25
Groyer, Milli K.                        40         68,000.00               1,888.89                  0.00              1,888.89            69,888.89             0.00         1,888.89
Kramer, Ada A.                          40         68,100.00               1,891.67                  0.00              1,891.67            69,991.67             0.00         1,891.67
Minkowitz, John L.                      55         36,840.00               1,023.33                575.63              1,598.96            38,438.96             0.00         1,598.96
Orleons, Janet C.                       40         45,783.00               1,271.75                  0.00              1,271.75            47,054.75             0.00         1,271.75
Pinkovich, Mark S.                      44         46,970.00               1,304.72                195.71              1,500.43            48,470.43             0.00         1,500.43
Romero, Sheila J.                       45         54,978.00               1,527.17                286.34              1,813.51            56,791.51             0.00         1,813.51
Tivoli, Jake T.                         40         42,078.00               1,168.83                  0.00              1,168.83            43,246.83             0.00         1,168.83
Wilson, Sharlet D.                      52         84,600.00               1,990.56                895.68              2,886.24            87,486.24             0.00            300.00
Totals                                            531,914.00              15,357.57              2,506.07            17,863.64            549,777.64           889.30        15,277.40



                                                                                                              Expense
                                                             Deductions                                                                    Payments            Expense Account Debited
    Federal             State             Social                             Medical                                   Total              Net        Check      Sales           Office
  Income Tax         Income Tax         Security Tax      Medicare Tax      Insurance             Other              Deductions          Amount        #    Wages Expense Wages Expense
         177.00               35.40               69.39             16.23           11.19                                    309.21           809.95    931        1,119.16             0.00
            90.00             18.00               45.59             10.66           11.03   UW              12.00            187.28           548.02    932          735.30             0.00
         103.00               20.60               56.77             13.28           13.73   UW              15.00            222.38           693.27    933          915.65             0.00
         122.00               24.40               66.54             15.56           16.10                                    244.60           828.65    934            0.00         1,073.25
         394.44               78.89              117.11             27.39           28.33                                    646.16         1,242.73    935        1,888.89             0.00
         395.30               79.06              117.28             27.43           28.38   UW              10.00            657.45         1,234.22    936            0.00         1,891.67
         312.24               62.45               99.14             23.18           23.98   UW              12.00            532.99         1,065.97    937        1,598.96             0.00
         222.00               44.40               78.85             18.44           19.08   UW              20.00            402.77           868.98    938            0.00         1,271.75
         284.65               56.93               93.03             21.76           22.51                                    478.88         1,021.55    939        1,500.43             0.00
         372.31               74.46              112.44             26.30           27.20   AR             50.00             662.71         1,150.80    940        1,813.51             0.00
         176.00               35.20               72.47             16.95           17.53   UW             25.00             343.15           825.68    941        1,168.83             0.00
         665.43              133.09               18.60             41.85           41.44   UW             30.00             930.41         1,955.83    942        2,886.24             0.00
       3,314.37              662.88              947.21           259.03           260.50                 174.00          5,617.99         12,245.65              13,626.97         4,236.67




                                                                                                                                                                   Expense
                                      Accounting Is Fun!                                                                                                                              8 - 53
                       Payroll Journal Entry:
                            Expenses

                             General Journal                           page 5
                                               Post.
        Date    Description                    Ref.    Debit       Credit
    2005
October        7 Sales Wages Expense                   13,626.97
                 Office Wages Expense                   4,236.67




                 Accounting Is Fun!                                   8 - 54
 Journalize the Payroll Entry from a Payroll Register
                                          Beginning                                     Earnings                                    Ending                           Taxable Earnings
                         Total            Cumulative                                                                              Cumulative                              Social
        Name             Hours             Earnings                 Regular             Overtime               Total               Earnings           Unemployment       Security
Asino, Matte E.                    46         32,890.00                  913.60                205.56             1,119.16             34,009.16                0.00         1,119.16
Boritsky, Olga                     45           6,192.00                 619.20                116.10                735.30             6,927.30              735.30            735.30
Dray, Greg G.                      49           6,846.00                 684.60                231.05                915.65             7,761.65              154.00            915.65
Foulkes, Bob L.                    40         38,637.00                1,073.25                  0.00             1,073.25             39,710.25                0.00         1,073.25
Groyer, Milli K.                   40         68,000.00                1,888.89                  0.00             1,888.89             69,888.89                0.00         1,888.89
Kramer, Ada A.                     40         68,100.00                1,891.67                  0.00             1,891.67             69,991.67                0.00         1,891.67
Minkowitz, John L.                 55         36,840.00                1,023.33                575.63             1,598.96             38,438.96                0.00         1,598.96
Orleons, Janet C.                  40         45,783.00                1,271.75                  0.00             1,271.75             47,054.75                0.00         1,271.75
Pinkovich, Mark S.                 44         46,970.00                1,304.72                195.71             1,500.43             48,470.43                0.00         1,500.43
Romero, Sheila J.                  45         54,978.00                1,527.17                286.34             1,813.51             56,791.51                0.00         1,813.51
Tivoli, Jake T.                    40         42,078.00                1,168.83                  0.00             1,168.83             43,246.83                0.00         1,168.83
Wilson, Sharlet D.                 52         84,600.00                1,990.56                895.68             2,886.24             87,486.24                0.00            300.00
Totals                                       531,914.00               15,357.57              2,506.07           17,863.64             549,777.64              889.30        15,277.40




                                                                                                        Expense
                                                                         Deductions                                                                        Payments
                 Federal            State           Social                                 Medical                                     Total              Net        Check
               Income Tax        Income Tax       Security Tax        Medicare Tax        Insurance              Other               Deductions          Amount        #
                      150.00              30.00             69.39               16.23             11.19                                      276.81           842.35    931
                         80.00            16.00             45.59               10.66             11.03   UW              12.00              175.28           560.02    932
                      107.00              21.40             56.77               13.28             13.73   UW              15.00              227.18           688.47    933
                      123.00              24.60             66.54               15.56             16.10                                      245.80           827.45    934
                      394.00              78.80            117.11               27.39             28.33   UW                                 645.63         1,243.26    935
                      395.00              79.00            117.28               27.43             28.38   UW              10.00              657.09         1,234.58    936
                      312.00              62.40             99.14               23.18             23.98   UW              12.00              532.70         1,066.26    937
                      193.00              38.60             78.85               18.44             19.08   UW              20.00              367.97           903.78    938
                      284.00              56.80             93.03               21.76             22.51                                      478.10         1,022.33    939
                      372.00              74.40            112.44               26.30             27.20   AR              50.00              662.34         1,151.17    940
                      164.00              32.80             72.47               16.95             17.53   UW              25.00              328.75           840.08    941
                      665.00             133.00             18.60               41.85             41.44   UW              30.00              929.89         1,956.35    942
                    3,239.00             647.80            947.21             259.03             260.50                  174.00           5,527.54         12,336.10




                                                       Payables
                                 Accounting Is Fun!                                                                                                                              8 - 55
                   Payroll Journal Entry:
                  Expenses and Payables


                            General Journal                                             page 5
                                                                Post.
       Date    Description                                      Ref.    Debit       Credit
    2005
October       7 Sales Wages Expense                                     13,626.97
                Office Wages Expense                                     4,236.67
                    Employees’ Federal Income Tax Payable                            3,239.00
                    FICA Tax Payable                                                 1,206.24
                    Employees' State Income Tax Payable                                647.80
                    Employees' Medical Insurance Payable                               260.50
                    Employees' United Way Payable                                      124.00
                    Accounts Receivable                                                 50.00
                    Wages Payable                                                   12,336.10
                      Payroll Register, for week ended Oct. 7




                Accounting Is Fun!                                                     8 - 56
                       Payroll Journal Entry
   Although Social Security & Medicare taxes are
   calculated separately, they are treated as a single
   payable because they will be paid at the same time

                            General Journal                                             page 5
                                                                Post.
       Date    Description                                      Ref.    Debit       Credit
    2005
October       7 Sales Wages Expense                                     13,626.97
                Office Wages Expense                                     4,236.67
                    Employees Federal Income Tax Payable                             3,239.00
                    FICA Tax Payable                                                 1,206.24
                    Employees' State Income Tax Payable                                647.80
                    Employees' Medical Insurance Payable                               260.50
                    Employees' United Way Payable                                      124.00
                    Accounts Receivable                                                 50.00
                    Wages Payable                                                   12,336.10
                      Payroll Register, for week ended Oct. 7

       Equivalent to sum of take home pay for all employees
                Accounting Is Fun!                                                     8 - 57
Paying Employees from Regular Checking
               Account




       Accounting Is Fun!           8 - 58
                     Paycheck




Accounting Is Fun!              8 - 59
            Payroll Bank Account

• A special checking account used to pay
  a company’s employees
• Money transferred from the regular
  checking account to the payroll account




      Accounting Is Fun!                    8 - 60
   Journal Entry for Paying Employees from
            Payroll Bank Account

                             General Journal                                          Page 11
                                                      Post.
   Date    Description                                Ref.    Debit          Credit
  2005
October   8 Wages Payable                                        12,336.10
               Cash—Payroll Bank Account                                         12,336.10
                Paid wages for week ended October 7



   Clear payable                                      Credit Cash—
    with a debit                                      Payroll Bank
                                                         Account



                     Accounting Is Fun!                                               8 - 61
     Performance Objective 6

Maintain employees’ individual earnings
records




    Accounting Is Fun!                    8 - 62
Employee’s Individual Earnings Record

• A supplementary record for each
  employee showing personal payroll data
  and yearly cumulative earnings,
  deductions, and net pay
• Contains source data for the required
  payroll tax reports




      Accounting Is Fun!                   8 - 63
Employee’s Individual Earnings Record




      Accounting Is Fun!            8 - 64
                     Demonstration Problem

                                        Payroll Problem
Payroll Register for Week Ended October 14, 2005—page 72


       Names    Beg. Cum. Earn. Week's Earnings    Unemployment       FICA              FICA
Barker, T. C.           6,820.00          480.00      UE Max         SS Max         Medicare Max
Ellis, M. R.            6,840.00          470.00         $7,000.00     $84,900.00
Fisk, C. P.            36,320.00          740.00     Fed Rate        SS Rate           M Rate
Janus, V. O.           69,043.00          540.00             0.008         6.20%            1.45%
Pham, H. L.            84,857.00        1,389.00    State Rate
Gell, M. A.            85,430.00        1,690.00             0.054




                   Accounting Is Fun!                                                      8 - 65
 Look to Beginning Earnings to Determine If
        There Are Taxable Earnings
                             Payroll Register for Week Ended October 14, 2005—page 72
                Beginning                              Ending                        Taxable Earnings
                Cumulative                           Cumulative                           Social
       Name      Earnings             Total           Earnings       Unemployment        Security        Medicare
Barker, T. C.         6,820.00              480.00
Ellis, M. R.          6,840.00              470.00
Fisk, C. P.         36,320.00               740.00
Janus, V. O.        69,043.00               540.00
Pham, H. L.         84,857.00            1,389.00
Gell, M. A.         85,430.00            1,690.00
Totals             289,310.00            5,309.00             0.00              0.00              0.00              0.00




                     Accounting Is Fun!                                                                      8 - 66
        Calculate Ending Cumulative Earnings

                             Payroll Register for Week Ended October 14, 2005—page 72
                Beginning                              Ending                        Taxable Earnings
                Cumulative                           Cumulative                           Social
       Name      Earnings             Total           Earnings       Unemployment        Security        Medicare
Barker, T. C.         6,820.00              480.00         7,300.00
Ellis, M. R.          6,840.00              470.00         7,310.00
Fisk, C. P.         36,320.00               740.00        37,060.00
Janus, V. O.        69,043.00               540.00        69,583.00
Pham, H. L.         84,857.00            1,389.00         86,246.00
Gell, M. A.         85,430.00            1,690.00         87,120.00
Totals             289,310.00            5,309.00        294,619.00             0.00              0.00              0.00




                     Accounting Is Fun!                                                                      8 - 67
                  Calculate Taxable Earnings

                             Payroll Register for Week Ended October 14, 2005—page 72
                Beginning                              Ending                        Taxable Earnings
                Cumulative                           Cumulative                           Social
       Name      Earnings             Total           Earnings       Unemployment        Security        Medicare
Barker, T. C.         6,820.00              480.00         7,300.00           180.00            480.00         480.00
Ellis, M. R.          6,840.00              470.00         7,310.00           160.00            470.00         470.00
Fisk, C. P.         36,320.00               740.00        37,060.00             0.00            740.00         740.00
Janus, V. O.        69,043.00               540.00        69,583.00             0.00            540.00         540.00
Pham, H. .          84,857.00            1,389.00         86,246.00             0.00             43.00       1,389.00
Gell, M. A.         85,430.00            1,690.00         87,120.00             0.00              0.00       1,690.00
Totals             289,310.00            5,309.00        294,619.00           340.00         2,273.00        5,309.00




                     Accounting Is Fun!                                                                      8 - 68
                                  Calculate Deductions

                                   Payroll Register for Week Ended October 14, 2005—page 72
                      Beginning                              Ending                        Taxable Earnings
                      Cumulative                           Cumulative                           Social
       Name            Earnings             Total           Earnings       Unemployment        Security            Medicare
Barker, T. C.               6,820.00              480.00         7,300.00           180.00            480.00             480.00
Ellis, M. R.                6,840.00              470.00         7,310.00           160.00            470.00             470.00
Fisk, C. P.               36,320.00               740.00        37,060.00             0.00            740.00             740.00
Janus, V. O.              69,043.00               540.00        69,583.00             0.00            540.00             540.00
Pham, H. .                84,857.00            1,389.00         86,246.00             0.00             43.00           1,389.00
Gell, M. A.               85,430.00            1,690.00         87,120.00             0.00              0.00           1,690.00
Totals                   289,310.00            5,309.00        294,619.00           340.00         2,273.00            5,309.00

                                      Payroll Register for Week Ended October 14, 2005—page 72
                                      Deductions                                                Payments        Salary Expense
     Federal            State           Social                                Total            Net        Ck.
   Income Tax        Income Tax       Security Tax       Medicare Tax      Deductions         Amount      No.   Salary Expense
             46.00             5.52             29.76               6.96             88.24
             45.00             5.40             29.14               6.82             86.36
             85.00            10.20             45.88              10.73            151.81
             55.00             6.60             33.48               7.83            102.91
          238.00              28.56              2.67              20.14            289.37
             64.00             7.68              0.00              24.51             96.19
          533.00              63.96            140.93              76.99            814.88           0.00                       0.00




                           Accounting Is Fun!                                                                          8 - 69
                Calculate Payments and Expense

                                   Payroll Register for Week Ended October 14, 2005—page 72
                      Beginning                              Ending                        Taxable Earnings
                      Cumulative                           Cumulative                           Social
       Name            Earnings             Total           Earnings       Unemployment        Security             Medicare
Barker, T. C.               6,820.00              480.00         7,300.00           180.00            480.00              480.00
Ellis, M. R.                6,840.00              470.00         7,310.00           160.00            470.00              470.00
Fisk, C. P.               36,320.00               740.00        37,060.00             0.00            740.00              740.00
Janus, V. O.              69,043.00               540.00        69,583.00             0.00            540.00              540.00
Pham, H. .                84,857.00            1,389.00         86,246.00             0.00             43.00            1,389.00
Gell, M. A.               85,430.00            1,690.00         87,120.00             0.00              0.00            1,690.00
Totals                   289,310.00            5,309.00        294,619.00           340.00         2,273.00             5,309.00

                                      Payroll Register for Week Ended October 14, 2005—page 72
                                      Deductions                                                Payments         Salary Expense
     Federal            State           Social                                Total            Net        Ck.
   Income Tax        Income Tax       Security Tax       Medicare Tax      Deductions         Amount      No.    Salary Expense
             46.00             5.52             29.76               6.96             88.24         391.76  714              480.00
             45.00             5.40             29.14               6.82             86.36         383.64  715              470.00
             85.00            10.20             45.88              10.73            151.81         588.19  716              740.00
             55.00             6.60             33.48               7.83            102.91         437.09  717              540.00
          238.00              28.56              2.67              20.14            289.37       1,099.63  718            1,389.00
             64.00             7.68              0.00              24.51             96.19       1,593.81  719            1,690.00
          533.00              63.96            140.93              76.99            814.88       4,494.12                 5,309.00




                           Accounting Is Fun!                                                                           8 - 70
                Make Journal Entry from Register

                                   Payroll Register for Week Ended October 14, 2005—page 72
                      Beginning                              Ending                        Taxable Earnings
                      Cumulative                           Cumulative                           Social
       Name            Earnings             Total           Earnings       Unemployment        Security             Medicare
Barker, T. C.               6,820.00              480.00         7,300.00           180.00            480.00              480.00
Ellis, M. R.                6,840.00              470.00         7,310.00           160.00            470.00              470.00
Fisk, C. P.               36,320.00               740.00        37,060.00             0.00            740.00              740.00
Janus, V. O.              69,043.00               540.00        69,583.00             0.00            540.00              540.00
Pham, H. .                84,857.00            1,389.00         86,246.00             0.00             43.00            1,389.00
Gell, M. A.               85,430.00            1,690.00         87,120.00             0.00              0.00            1,690.00
Totals                   289,310.00            5,309.00        294,619.00           340.00         2,273.00             5,309.00

                                      Payroll Register for Week Ended October 14, 2005—page 72
                                      Deductions                                                Payments         Salary Expense
     Federal            State           Social                                Total            Net        Ck.
   Income Tax        Income Tax       Security Tax       Medicare Tax      Deductions         Amount      No.    Salary Expense
             46.00             5.52             29.76               6.96             88.24         391.76  714              480.00
             45.00             5.40             29.14               6.82             86.36         383.64  715              470.00
             85.00            10.20             45.88              10.73            151.81         588.19  716              740.00
             55.00             6.60             33.48               7.83            102.91         437.09  717              540.00
          238.00              28.56              2.67              20.14            289.37       1,099.63  718            1,389.00
             64.00             7.68              0.00              24.51             96.19       1,593.81  719            1,690.00
          533.00              63.96            140.93              76.99            814.88       4,494.12                 5,309.00


                            Payables                                                                              Expense
                           Accounting Is Fun!                                                                           8 - 71
                         Record Salary Expense

                                 General Journal                      Page 17

                                                   Post.
 Date Description                                  Ref. Debit       Credit
2005
Oct. 14 Salary Expense                                   5,309.00




                    Accounting Is Fun!                                 8 - 72
         Record Payables to Make DR = CR

                                  General Journal                                           Page 17

                                                                         Post.
 Date Description                                                        Ref. Debit       Credit
2005
Oct. 14 Salary Expense                                                         5,309.00
            Employees’ Federal Income Tax Payable                                            533.00
            Employees’ State Income Tax Payable                                               63.96
            FICA Tax Payable                                                                 217.92
            Salaries Payable                                                               4,494.12
              Payroll Register for Week Ended October 14, 2005—page 72




                     Accounting Is Fun!                                                      8 - 73
   Journalize Cash Payments to Employees

                                  General Journal                                           Page 17

                                                                         Post.
 Date Description                                                        Ref. Debit       Credit
2005
Oct. 14 Salary Expense                                                         5,309.00
            Employees’ Federal Income Tax Payable                                            533.00
            Employees' State Income Tax Payable                                               63.96
            FICA Tax Payable                                                                 217.92
            Salaries Payable                                                               4,494.12
              Payroll Register for Week Ended October 14, 2005—page 72

     14 Salaries Payable                                                       4,494.12
            Cash—Payroll Bank Account                                                      4,494.12
              Paid wages for week ended Oct. 14, 2005




                     Accounting Is Fun!                                                      8 - 74

				
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