PAYROLL ACCOUNTING Chapter 11 Dean H Owens, CPP Systems Consultant – ADP 847-718-2283 Dean_owens@adp.com Saturday, March 5th, 2011 AGENDA • Understanding Transaction/Flow • Chart of Accounts • Dr/Cr (Increase vs. Decrease) • Type of Accounts • Accruals/Reversals • T-Accounts • Financial Statements • Final Exam/Review Payroll Accounting Review Course “Temp Check” Questions 1. Which of the following would not be an asset account? – Wages payable – Work-in-process – Cash – Employee Receivables 2. The correct entry to record a payment of the employer’s share of FICA tax is: – Debit payroll tax expense, credit cash – Debit salary expense, credit tax withheld – Debit cash, credit payroll tax expense – Debit tax withheld, credit salary expense 3. The financial statement that is used to evaluate the performance of a business by matching its revenue and related expenses for a particular accounting period is a : – Trial Balance – General Ledger – Balance Sheet – Income Statement Payroll Accounting Review Course “Temp Check” Questions 4. The proper entry to record the payment of accrued wages is: Debit accrued wages, credit cash Debit cash, credit accrued wages Debit salary expense, credit accrued wages Debit cash, credit salary expense 5. Accounts Payable are: Assets Liabilities Balance sheet item Equity 6. Revenue can be obtained in the form of : (two answers) Cash Accounts Payable Equity Accounts Receivable 7. Payments of Expenses decrease assets and : Increase revenue Decrease revenue Increase Liabilities Decrease owners Equity Debit and Credits Debits are recorded on the Left Side of an Account. Credits are recorded on the Right Side of an Account. Debit Credit Transaction Journal Ledger(G/L) Financial Statements Activity Dr/Cr Trial Balance Balance Sheet/P&L Transaction Flow Examples of Transactions • Taking an order to purchase a truck • Manufacture of the truck • Shipping of the Truck • Receiving payment of the truck • Recording Depreciation of the truck TRANSACTIONS Name: JE # ______________ Date: Date Acct. Description DR CR 1/15/2009 1400 Computer Equipment 5,200.00 1000 Cash 5,200.00 To record purchase of 5 Computer Monitors 1/18/2009 2000 Accounts payable 1,000.00 1000 Cash 1,000.00 To record payment of A/P - Chairs 1/22/2009 6400 Travel & Entertainment 550.00 2000 Accts payable - Visa 550.00 To record hotel expenses 1/29/2009 6110 Payroll Expenses 30,000.00 6120 Benefits 20,000.00 6180 Training 12,500.00 2100 Payroll Liabilities 62,500.00 To record January P/R Expenses Check 69,250.00 69,250.00 NOTICE: - Chronological recording of daily Transactions - Double entry accounting - Debits must = Credits - Compound Entry Chart of Accounts • Asset Accounts • Liability Accounts • Revenue Accounts • Expense Accounts • Equity Accounts Assets and Liabilities Asset Accounts: Debit = Increase Credit = Decrease Liability Accounts: Debit = Decrease Credit = Increase Revenue and Expense Revenue Accounts: Debit = Decrease Credit = Increase Expense Accounts: Debit = Increase Credit = Decrease Chart of Accounts Balance Sheet Asset Accounts (D) Liability Accounts (C) Equity Accounts (C) Assets = Liab. + Equity Profit/Loss (P&L) Revenue Accounts (C) Expense Accounts (D) Revenue – Expense = Profit/(Loss) Type of Accounts Asset Accounts – Anything owned by the company. - Computers - Payroll Software - Equipment - Furniture - Cash in the payroll checking account - Petty Cash Type of Accounts Liability Accounts – Debts owed by the company. - Taxes withheld but not yet paid. - Contributions to a company benefit plan not yet paid. - A leasing contract for a payroll hardware/software system. - Accounts Payable Type of Accounts Equity Accounts – The net worth of the company, or the shareholders’ equity. - Retained Earnings. - Capital Accounts. Type of Accounts Revenue Accounts – Income recognized for goods sold and services rendered. - Gross Revenue. - Earned Income. - Services Type of Accounts Expense Accounts – Cost of goods or services used in the process of obtaining revenue for the company. - Salaries Expense - Employees - Benefit Expense - Cost of employer paid benefit programs. - Lease Expense - payments for hardware/software system. - Depreciation Expense - equipment. Accruals and Reversals Matching Principle – Expenses should always be posted against Revenues they produced. Accruals & Reversals– record items in the period that they occurred. At the end of the period all of the Debits and Credits are added up and must balance. General Ledger Record of business transactions by account. Where transactions are posted. In most businesses there are a number of subsidiary ledgers that make up the General ledger. (A/P, A/R, Billing, etc) Financial Statements Income Statement. (Revenue minus Expenses) For a period of time. Balance Sheet. (Assets equals Liabilities plus Equity) At a point in time Statement Operations January 31, 2008 Revenue 5,000,000 Expenses Salaries and Wages 1,020,000 Payroll Taxes 111,500 Travel & Entertainment 30,000 Rent 20,000 Office Supplies 5,000 Total Salaries & Benefits 1,186,500 Net Income before Taxes 3,813,500 Provision for Income Taxes 50,000 Net Income (Loss) 3,763,500 G & G Consulting, Inc Balance Sheet January 31, 2008 ASSETS Current Cash 3,561,750 Accounts Receivable 5,560,000 TOTAL CURRENT ASSETS 9,121,750 PROPERTY AND EQUIPMENT Furniture, Fixtures, & Equipment 1,000,000 Accumulated Depreciation (50,000) PROPERTY AND EQUIPMENT, NET 950,000 TOTAL ASSETS 10,071,750 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable 55,000 Social Security Tax Payable 62,000 Medicare Tax Payable 14,500 Federal Withholding Tax Payable 61,750 State Withholding Tax Payable 20,000 Federal Unemployment Tax Payable 8,000 State Unemployment Tax Payable 27,000 Federal Inocme Taxes Payable 50,000 TOTAL CURRENT LIABILITIES 298,250 STOCKHOLDER'S EQUITY Common Stock 10,000 Current Earnings (Loss) 3,763,500 Retained Earnings 6,000,000 TOTAL STOCKHOLDERS' EQUITY 9,773,500 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 10,071,750 Questions?? Thank you . . . Good Luck Future CPP’s To Be !!