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Unit 11 Payroll

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Payroll Administration

Unit 11 – Basic Payroll Accounting

Unit 11 Learning Outcomes
Describe the interaction with an accounting department
Demonstrate a basic journal entry
Set up an account
Summarize amounts paid

Introduction

Every business must keep records showing transactions relating to goods or services rendered and the costs incurred to run the business, known as expenses.
This process is referred to as bookkeeping, which is simply entering each transaction that affects the financial position of the business in a ledger.
The term accounting refers to the process of measuring recording summarizing and analyzing the information recorded in the ledger. This helps the company plan and control the activities of the business. Based on this information the company can make sounds business decisions and communicate it the bank, auditors and shareholders.
How does this relate to payroll? The payroll department is responsible to ensure that all payroll transactions are accurately recorded in the general ledger of the company. Good internal controls over payroll expenses help the business achieve efficiency and to safeguard the company from financial exposure.

Payroll accounting handles the expenses and liabilities arising from compensating employees.

Basic payroll transactions which must be accounted for in the general ledger are wages, the employee’s portion of CPP and EI, the employer’s payroll expense (statutory expenses in Ontario) includes the employer’s share of CPP, EI, employer’s also pay for provincial health tax-EHT and WSIB. Employers may provide their employees benefits such a pension plans and life insurance which all must be recorded. As well as any of the employee’s deductions for third party garnishments, union dues, or voluntary deductions must be recorded. In summary, all wages and deductions must be accounted for.

A basic payroll accounting system consists of a payroll register, a payroll bank account, payroll cheques (direct deposits) and an earnings record for each employee.

General Ledger

The general ledger is used to keep an organized record, by account, of the business transactions of a company. There can be few or many different accounts depending on the size and the needs of the company.

Elements of a General Ledger Account

The first step in the accounting process is setting up accounts. Each account has at least five elements; Account name and number, an opening balance, reference, a debit or credit entry and a closing balance.
Debit entries are always entered on the left side of an account and credit entries are entered on the right.

Elements of a Journal Entry

Each journal entry to the general ledger must contain the following
1. A journal entry reference or number
2. The date of the transaction
3. The debit or credit amount to be applied to each account
4. A total of the debits and the credits (these must equal each other)
5. A brief explanation of why you are making this entry

Payroll Journals

Payroll journals, otherwise referred to as payroll registers, contain information about each transaction. These transactions are entered into the general ledger system on a journal entry.

EMPLOYEE EXPENSES (DEDUCTIONS)

Every employer must maintain an accurate and detailed record of all deductions made from an employee’s wages. These are recorded as current liabilities on the balance sheet from the date the deduction is made until the amount is remitted to the appropriate agency (government or third party).

There is not enough information provided to enable you to determine if the CPP, EI and tax are correct-they are for format only

EXAMPLE

Journal Entry #:
Date:
Account Name Debit Amount Credit Amount
Wages Expense $41000.00
CPP Payable $1400.00
EI Payable $989.00
Taxes Payable $15000.00
Union Dues Payable $1000.00
Wages Payable (Net) $22611.00
Total $41000.00 $41000.00
Note: To record total wages payable and the deductions for the
Month of July 2011

EMPLOYER PAID EXPENSES
Payroll taxes are also applicable to employers as well as employees. As we have already learned the employer must pay CPP, EI, EHT, WSIB (in Ontario as other provinces have different statutory requirements) as well as other contractual and volunteer obligations such as health and medical benefits, pension and other benefits they have obligated themselves to pay on behalf of their employees. These expenses are debited to an expense account and credited to a liability account when the payroll is paid each period. Just as with the employee deductions they remain as a current liability from the date the expense is incurred until the remittance is made to the appropriate government agency or business.

EXAMPLE

Journal Entry #:
Date:
Account Name Debit Amount Credit Amount
CPP Expense $1400.00
EI Expense $ 1384.60
CPP Payable $ 1400.00
EI Payable $ 1384.60
Total $2784.60 $2784.60
To record the payroll expenses for the month of July 2011

Journal Entry #:
Date:
Account Name Debit Amount Credit Amount

Employee Dental Benefit
Expense 1092.00
Employee Befits Payable 1092.00
To record employee benefits payable by the employer

Unit Summary

Payroll is usually one of the largest expenses a business has next to capital.
Every company keeps records showing all of the income, expenses and assets and liabilities. This is a very important part of the accounting process and it is critical that the information be recorded on a timely basis. Bookkeeping essentially shows the financial position of the business. This process of measuring, recording, summarizing, and analyzing the information helps the company control and plan the business activities. Also, with this information the company can make sound business decisions.

Next Steps
Well this is it…last assignment before the final. The assignment can be found under week 13 on the main page of the course. Please download the file to your hard drive and once completed you can upload it on the assignment page. Good luck and please always remember to check the due date to ensure your work is submitted on time!

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