CMAI W07 Accounting for Labour Costs 1. Distinguish between the different treatment of direct and indirect labour costs. Direct labour – charge to ____________________________ Indirect Labour – charge to ___________________________ Employer share of employee benefits, payroll taxes etc. are charged to ____________________________ Selling & Administration salaries are charged to __________________ or ________________________. Selling & Administration benefits are charge to _______________________________________. 2. Various payroll taxes and fringe benefits are paid in whole or part by the employer. Deduction Employee Rate Employer Rate Employment Insurance (EI) Canada Pension Plan (CPP) Employer Health Tax (EHT) Company Pension Plan Vacation Pay Supplementary Health Benefits 3. Accrued Payroll Account Used to record and clear the _________________________ Typically has a __________ balance and is similar to _______________ except it represents ________________ costs rather than ________. CMAI W07 Since the amount of gross payroll paid in a month rarely equals the gross payroll cost incurred in the month there is always a credit balance in the accrued payroll account. i.e. the debit amount and the credit amount cover different time periods. Under this system, there is no need for month end adjusting entries – the ending balance is the month end accrual. Accrued Payroll Note: employer share of payroll taxes and benefits can either be based on the total debits for a month or the total credits for a month in the accrued payroll account. It is more theoretically sound to base employee benefit costs on _________ ____________ in the month (credit side) than payrolls ____________ in the month. This is the method we will use, however many smaller businesses base their payroll taxes and benefits on payrolls ___________ (debit side). Remittance of payroll taxes to the government is based on payrolls _______ in the month rather than payroll costs ________________. But it is more accurate to record the costs and benefits on the basis of costs incurred and spread them over the whole year. When EI and CPP maximum limits are reached for individual employees (often between September and November), the cost to the employer ___________ significantly for the latter part of the year. However, many larger companies want this cost spread over all twelve months-----the period when the related labour costs were incurred. Therefore, they use a “__________” rate for EI and CPP that spreads the employer cost over twelve months. This feature is built into more advanced computer systems and cannot be undertaken by smaller businesses.
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