CHAPTER 6
Learning Objectives
After studying this chapter, students should be able to:
1. Record payrolls in payroll registers and post to employees’ earnings records.
2. Understand the various deductions—both voluntary and involuntary (taxes and
garnishments)—that are taken out of employees’ gross pay.
3. Journalize the entries to record the payroll and payroll taxes.
4. Post to the various general ledger accounts that are used to accumulate
information from the payroll entries.
5. Explain the recording of the payroll tax deposits.
6. Understand the need for end-of-period adjustments.
Contents
Chapter 6 outline:
LEARNING OBJECTIVES
THE PAYROLL REGISTER
Proving the Totals of the Payroll Register
Using the Information in the Payroll Register
THE EMPLOYEE’S EARNINGS RECORD
RECORDING THE GROSS PAYROLL AND WITHHOLDINGS
Gross Payroll
FICA Taxes—Employee
Federal Income Taxes
State and City Income Taxes
Employees’ Contributions to State Funds
Other Payroll Deductions
Group Insurance
Health Insurance
Purchase of Government Savings Bonds
Union Dues
Garnishment of Wages
Child Support
Federal Tax Levy
Pension and Retirement Contributions
Net Pay
6–2 Payroll Accounting
METHODS OF PAYING WAGES AND SALARIES
Paying in Cash
Paying by Check
Paying by Electronic Transfer
Pay Cards
Electronic Paystub
Final Pay
Unclaimed Wages
RECORDING PAYROLL TAXES
RECORDING WORKERS’ COMPENSATION INSURANCE EXPENSE
RECORDING THE DEPOSIT OR PAYMENT OF PAYROLL TAXES
Depositing FICA Taxes and Federal Income Taxes Withheld
Paying State or City Income Taxes
Paying FUTA and SUTA Taxes
RECORDING END-OF-PERIOD ADJUSTMENTS
Wages
Vacation Pay
SUMMARY OF ACCOUNTS USED IN RECORDING PAYROLL TRANSACTIONS
ILLUSTRATIVE CASE
KEY TERMS
ANSWERS TO SELF-STUDY QUIZZES
KEY POINTS SUMMARY
Matching Quiz (p. 6–35)
Chapter 6 6–3
Questions for Review (p. 6–36)
1. The main kinds of information contained in a payroll register include period covered
by the payroll, name of each employee, marital status and number of withholding
2. Distribution columns are sometimes provided in the payroll register in order to classify
the wages and salaries according to the nature of the wage and salary expense, such
3. The Cumulative column in the employee’s earnings record is used to record the to-
tal amount of accumulated wages each pay period so that the cutoff point for each
4. No, a separate account should be kept in the general ledger for recording the
employer’s liability for each of the three kinds of income tax withheld. Thus, at the
5. Garnishment refers to the legal or equitable procedure by means of which a portion
of the wages of any person must be withheld for payment of a debt. Through the
6. In regard to wage attachments, the following priority withholding orders apply:
8. The only portions of an employee’s wages exempt from a federal tax levy are the
9. The amounts withheld for employees’ contributions into their 401(k) plans are
6–4 Payroll Accounting
10. These employees are given payroll cards that allow employers to deposit employ-
11. The information will be made available through a secure Web site, kiosk, or interac-
tive voice response system.
12. The uniform law followed by most states provides that the holder of this unclaimed
13. Those special accounts that must usually be opened in the general ledger to record
payroll tax entries include:
15. a. A debit to Wages increases operating expenses and decreases the cash ac-
16. When computing the cost of workers’ compensation insurance, employees should
Chapter 6 6–5
17. When the employer records the deposit of FICA taxes and federal income taxes
withheld, the following entry is made:
18. In order to save the time of accumulating timesheets for a portion of a week, the
19. The expenses of these benefits are recorded in the periods when the employees
20. The expenses incurred include wages and salaries, payroll taxes, workers’ com-
Questions for Discussion (p. 6–36)
1. The CCPA protects employees with a garnishment for a single indebtedness from
discharge and this would include any adverse action that interrupts employment to
2. Some of the costs that a company might incur as a result of its salary payments
include:
6–6 Payroll Accounting
3. Since an exempt employee must be paid a salary each payday, the company would
not be allowed arbitrarily to take the salary back in subsequent pays. An arrangement
Problem Sets (p. 6–37)
The principles and practices of payroll accounting discussed in Chapter 6 are applied in
the Problem Sets as shown below.
Principle or Practice Problem Set No. (A and B)
1. Calculating garnishments. 6–1, 6–2
2. Recording payrolls and payroll tax entries. 6–3 through 6–16
Solutions—Problem Set A
6–2A. (a) Disposable earnings [exclude health insurance,
Chapter 6 6–7
6–3A. (a) Wages…………………………………………………………… 8,500.00
FICA Taxes Payable—OASDI ……………………… 527.00
FICA Taxes Payable—HI ……………………………. 123.25
6–4A. Wages…………………………………………………………… 4,690.00
6–5A. (a) Wages…………………………………………………………… 67,000.00
FICA Taxes Payable—OASDI ……………………… 3,958.70
(b) Wages…………………………………………………………… 67,000.00
6–8 Payroll Accounting
6–6A.
PAULEY, INC.
Supplementary Payroll Sheet
Net
Name of Amount Bills Coins
Employee Paid $20 $10 $5 $1 50¢ 25¢ 10¢ 5¢ 1¢
Chad T. Biskis $ 251.75 12 1 1 1 1
Nicole A. Cibik 256.52 12 1 1 1 1 2
6–7A. Wages ……………………………………………………………. 1,500.00
FICA Taxes Payable—OASDI ………………………. 93.00
FICA Taxes Payable—HI …………………………….. 21.75
6–8A. Wages ……………………………………………………………. 12,000.00
FICA Taxes Payable—OASDI ………………………. 744.00
FICA Taxes Payable—HI …………………………….. 174.00
Chapter 6 6–9
6–9A. Wages …………………………………………………………… 17,210.00
FICA Taxes Payable—OASDI ……………………… 1,067.02
FICA Taxes Payable—HI …………………………….. 249.55
6–13A. (a) Full-time employee-hours …………………………………………………… 8,270
(c) Workers’ Compensation Insurance Expense ………. 143.08
Workers’ Compensation Insurance
6–15A.
1.
Taxes to Be Withheld
from Employees’
Earnings Under
Employer Taxes:
Portion of Employees’
Earnings Taxable Under
FICA FICA
Employee OASDI HI SUTA OASDI HI FUTA SUTA
1. Weiser, Robert A. ……… $ 0.00 $25.96 ……. $ ………. $ 1,790.00 ………… …………
2.
Total taxable earnings ………………………………………………… $2,505.00 $5,815.00 $620.00 $815.00
Chapter 6 6–11
6–16A. (a)
BROOKINS COMPANY JOURNAL
Page 19
20–
Apr. 1 Union Dues Payable …………………………. 28 100.00
Cash ………………………………………….. 11 100.00
29 Wages and Salaries ………………………….. 51 5,850.00
6–12 Payroll Accounting
6–16A. (Continued)
JOURNAL Page 20
20–
May 2 Union Dues Payable ………………………… 28 105.00
SUTA Taxes Payable …………………… 23 133.63
16 FICA Taxes Payable—OASDI ……………. 20 1,482.42
Chapter 6 6–13
6–16A. (Continued)
JOURNAL Page 21
20–
June 15 Wages and Salaries ………………………….. 51 6,380.00
FICA Taxes Payable—OASDI ……….. 20 395.56
15 FICA Taxes Payable—OASDI ……………. 20 1,471.88
6–14 Payroll Accounting
6–16A. (Continued)
GENERAL LEDGER
(b)
CASH 11
Balance
Date Item P.R. Dr. Cr. Dr. Cr.
20–
Apr. 1 Balance ………. 9 ………….. ……………. 57,673.56 ……………
FICA TAXES PAYABLE—OASDI 20
Balance
Date Item P.R. Dr. Cr. Dr. Cr.
20–
Apr. 1 Balance ……… 9 ………….. ……………. …………… 1,068.88
15 ………………….. J19 ………….. 378.51 …………… 1,447.39
15 ………………….. J19 ………….. 378.51 …………… 1,825.90
Chapter 6 6–15
6–16A. (Continued)
FICA TAXES PAYABLE—HI 21
Balance
Date Item P.R. Dr. Cr. Dr. Cr.
20–
Apr. 1 Balance ……… 9 …………….. ……………. ……………. 249.98
FUTA TAXES PAYABLE 22
Balance
Date Item P.R. Dr. Cr. Dr. Cr.
20–