Extension Ch.9

download Extension Ch.9

of 32

Embed Size (px)

Transcript of Extension Ch.9

  • 7/24/2019 Extension Ch.9

    1/32

    Extension_Chapter 9

    Payroll Accounting and taxes

  • 7/24/2019 Extension Ch.9

    2/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-2

    2

    Liabilities

    Legal obligations require futurepayments of cash or services or

    the creation of other liabilities asa result of past transactions.

    Current liabilities obligationsmust be fulfilled in one year orone operating cycle! "hichever islonger.

  • 7/24/2019 Extension Ch.9

    3/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-3

    3

    Current Liabilities

    Examples of current liabilities "ith definite amountas a result of a business transaction

    A#P $accounts payable%

    P $notes payable including commercial paperissued%

    Current maturity portion of a long'term debt

    (ales taxes payable

    Accrued liabilities $taxes payable! interest payable!"age payable%

    Payroll taxes "ithholdings

    )nearned revenues

  • 7/24/2019 Extension Ch.9

    4/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-4

    4

    (ales *axes Payable

    (ales taxes are taxes levied by states on retail sales! not onmanufacturers.

    Sales taxes are expressed as a stated percentage of the sales

    price.

    *he rate varies state by state $for example! (tarting +#,#-9!California has a state"ide sales tax at /.-01 "ith a localsupplementary tax for up to ,.201%.

  • 7/24/2019 Extension Ch.9

    5/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-5

    5

    (ales *axes Payable

    Either rung up separately or included intotal receipts.

    3etailers charge their customers thesales taxes in addition to the price of

    the merchandise.

    *he retailers have to for"ard thecollected sales taxes to the state at

    regular intervals.

  • 7/24/2019 Extension Ch.9

    6/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-6

    6

    (ales *axes'Example $,%

    Assume that the ,-#--#-9 sales of 4acy5s inCalifornia totaled 6-!!. *he state taxrate is /.-01. *he business "ould record theday5s sales as follo"s

    Cash -!,70!

    (ales 3evenue -!! (ales *axes Payable ,70!

  • 7/24/2019 Extension Ch.9

    7/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-7

    1. Warkentinne Copan! rings "p sales and salestaxes separatel! on its cash register. #n $pril 1%& theregister totals are sales '3%&%%% and sales taxes

    '1&5%%.

    2. (i)era Copan! does not segregate sales andsales taxes. *ts register total for $pril 15 is '23&54%&

    +hich incl"des a 7, sales tax.8nstructions repare the entr! to record the salestransactions and related taxes for each client.

    Sales axes-/xaple 02

  • 7/24/2019 Extension Ch.9

    8/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-

    1. Warkentinne Copan! rings "p sales and sales taxesseparatel! on its cash register. #n $pril 1%& the registertotals are sales '3%&%%% and sales taxes '1&5%%.

    Sales Revenues 30,000

    Cash 31,500

    Sales tax payable 1,500

    Sales axes-/xaple 02

  • 7/24/2019 Extension Ch.9

    9/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-9

    2. (i)era Copan! does not segregate sales and salestaxes. *ts register total for $pril 15 is '23&54%& +hichincl"des a 7, sales tax.

    Sales Revenues 22,000

    Cash 23,540

    Sales tax payable 1,540

    $23,540 / 1.07 = $22,000

    Sales axes-/xaple 02

  • 7/24/2019 Extension Ch.9

    10/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-1%

    The ter !payr"ll# pertans t" b"th%

    Salaries& ana'eral, a(nstratve, an( sales

    pers"nnel )"nthly "r yearly rate*.

    Wages& st"re +lers, -a+t"ry epl"yees, an(

    anual lab"rers )rate per h"ur*.

    eternn' the payr"ll nv"lves +"putn' threea"unts% )1* gross earnings, )2* payroll deductions,an( )3* net pay.

    a!roll $cco"nting

  • 7/24/2019 Extension Ch.9

    11/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-11

    T"tal +"pensat"n earne( by an epl"yee )a'es

    "r salares, plus any b"nuses an( +"ss"ns*.

    Gross Earnings

    eterining the pa!roll

  • 7/24/2019 Extension Ch.9

    12/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-12

    Mandatory:

    C tax )S"+al

    Se+urty an(e(+are*

    e(eral n+"e tax

    State n+"e tax

    Payroll Deductions

    Voluntary:

    Charty

    n"n (ues

    ealth an( l-e nsuran+e

    6ens"n plans

    eterining the pa!roll

  • 7/24/2019 Extension Ch.9

    13/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-13

    8CA *axes

    (ocial (ecurity *axes

    Proceeds used for Pension payments

    after a "or:er hasreached 7- years

    ;isability benefits fordisabled "or:er

    4edicare *axes

    Proceeds used formedical insurance for

    eligible people age 70or over

    FICA (Federal Insurance Contributions Act)established a tax that transfers money fromworkers to aged retirees or suffering from a

    disability.

  • 7/24/2019 Extension Ch.9

    14/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-14

    8CA *axes

    The social security taxis a designated percentage ofincome up to a certain maximum le!el of annual incomeper employee. After the amount is reached no furtheramounts are due for that year.

    6.2% (max earnings taxable is $106,800 for 2009)

    Te me!icare tax is also a designated percentage ofincome. "owe!er there is no limit on maximum earnings

    taxable. The tax is le!ied on e!ery dollar of gross incomewithout regard to the employees total earnings

    1."#%

  • 7/24/2019 Extension Ch.9

    15/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-15

    Calculating 8CA *axes

    Week Earnings 1,119.16$

    Cumulative earnings to date 32,890$

    FIC

    !o"ial !e"urit# rate 6.2

    %edi"al &ate 1.'(

    FIC !o"ial !e"urit# )edu"tion*1,119.16$+0.062

    69.39$

    FIC %edi"are )edu"tion*1,119.16$+0.01'(

    16.23$

    9 16

  • 7/24/2019 Extension Ch.9

    16/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-16

    Mandatory:

    C tax

    e(eral n+"e tax

    State n+"e tax

    Payroll Deductions pl"yers are re8ure( t"

    thh"l( n+"e taxes -r"epl"yees pay.

    9thh"l(n' a"unts arebase( "n 'r"ss a'es an(the nuber "- all"an+es+lae(.

    ederal *ncoe ax

    9 17

  • 7/24/2019 Extension Ch.9

    17/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-17

    Mandatory:

    C tax

    e(eral n+"e tax

    State n+"e tax

    Payroll Deductions

    "st states )an( s"e+tes* re8ure employerst" thh"l( n+"e taxes-r" epl"yees: earnn's.

    State *ncoe ax

    9 1

  • 7/24/2019 Extension Ch.9

    18/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-1

    Payroll *ax Components

    (tate unemployment tax $()*A%

    Levied only on the employer in most states

    3ate varies by state $0.+1%

    Pays subsistence benefits to unemployed "or:ers

    ederal unemployment tax $)*A%

    Levied only on the employer

    3ate varies $./1%

    )sed to administer federal unemployment fund

    9 19

  • 7/24/2019 Extension Ch.9

    19/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-19

  • 7/24/2019 Extension Ch.9

    20/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-2%

    ?ther employee deductions

    ?ther employee deductions typically occur for employeecontributions to retirement or savings plans! charitablecontributions! contributions to tax'advantaged health and child caresavings programs! health care insurance [email protected]

    As soon as the company remits the withheld amounts to the appropriate

    entities it will debit the related #ayable Accounts and credit Cash.

    9 21

  • 7/24/2019 Extension Ch.9

    21/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-21

    ;r"ss earnn's less payr"ll (e(u+t"ns.

    Net Pay

    8et a!

    9 22

  • 7/24/2019 Extension Ch.9

    22/32 2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-22

    pl"yer re8ure( by la t" eep a +uulatvere+"r( "- ea+h epl"yee:s 'r"ss earnn's,(e(u+t"ns, an( net pay (urn' the year.

    Maintaining Payroll Department Records

    a!roll (ecords

    9 23

  • 7/24/2019 Extension Ch.9

    23/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-23

    any +"panes -n( t use-ul t" prepare a payr"llre'ster. Ths re+"r( a++uulates the 'r"ssearnn's, (e(u+t"ns, an( net pay by epl"yee -"r

    ea+h pay per"(.

    Maintaining Payroll Department Records

    a!roll (ecords

    9 24

  • 7/24/2019 Extension Ch.9

    24/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-24

    Enter information into accounting system

    >ross payroll is debited

    Each "ithholding tax is a liability

    All other payroll deductions are liabilities as"ell

    (ecogniing pa!roll expenses

    and liailities

    9 25

  • 7/24/2019 Extension Ch.9

    25/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-25

  • 7/24/2019 Extension Ch.9

    26/32

    9-27

  • 7/24/2019 Extension Ch.9

    27/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-27

    Recording Payment of the Payroll

    9a'es payable 500.50

    Cash 500.50

    (ecording pa!ent of pa!roll

    9-2

  • 7/24/2019 Extension Ch.9

    28/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9-2

    ++"r(n' t" a payr"ll re'ster suary "- Ru? C"pany,the a"unt "- epl"yees: 'r"ss pay n e+eber as$B50,000, "- h+h $0,000 as n"t subEe+t t" C

    tax an( $750,000 as n"t subEe+t t" state an( -e(eralunepl"yent taxes.

    Instructions:

    6repare the E"urnal entry t" re+"r( e+eber payr"ll taxexpense. se the -"ll"n' rates% C [email protected], stateunepl"yent [email protected], -e(eral unepl"yent [email protected]

    /plo!er pa!roll taxes

  • 7/24/2019 Extension Ch.9

    29/32

    9-3%

  • 7/24/2019 Extension Ch.9

    30/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9 3%

    Post'3etirement enefits

    6"st&retreent bene-ts are bene-ts that epl"yerspr"v(e t" retre( epl"yees -"r !" pensionsan( #"health care and life insurance.

    C"panes a++"unt -"r p"st&retreent bene-ts "n theaccrual $asis.#ension plans that in!ol!e employee contributions result in liabilityfor the employer

    The +"st "- p"st&retreent bene-ts s 'ettn' steep.

    9-31

  • 7/24/2019 Extension Ch.9

    31/32

    2004 The McGraw-Hill CompaniMcGraw-Hill/Irwin

    9 31

    Pensions

    pension plans an a'reeent hereby epl"yerspr"v(e bene-ts t" epl"yees a-ter they retre.

    There are t" types "- pens"n plans%

    % defined&contri$ution plan

    % defined&$enefit plan

    ost-(etireent :enefits

    9-32

  • 7/24/2019 Extension Ch.9

    32/32

    9 32

    Pensions

    n a defined&contri$ution plan, the plan (e-nes the +"ntrbut"nthat an epl"yer ll ae but n"t the bene-t that the epl"yeell re+eve at retreent.

    pens"n -un(s that 'ht be nveste( n st"+s, b"n(s "r "ther nvestents.

    the rs s trans-erre( t" the epl"yee

    the +"pany erely expenses the per"(+ +"ntrbut"n as n+urre(

    n a defined&$enefit plan, the epl"yer a'rees t" pay a (e-ne(a"unt t" retrees, base( "n epl"yees eetn' +ertan el'blty

    stan(ar(s. ex. ae annual pens"n payents n pr"p"rt"n t" the avera'e salary (urn' the last three years "-

    epl"yent

    the +"pany re+"r(s the a"unt "- expense attrbute( t" ea+h year )estat"n*. - the +"panyhas -ale( t" -un( all the a"unts expense(, a pens"n lablty s rep"rte( "n ts balan+e sheet.

    ost-(etireent :enefits