janet stan, cpp corporate controller talco enterprises, llc 847-480-7366 x 3116...
TRANSCRIPT
Janet Stan, CPP
Corporate Controller
Talco Enterprises, LLC
847-480-7366 x 3116
PAYROLL ACCOUNTINGChapter 6
Purpose of Accounting
• Keep track of monetary transactions such as Payroll• Report financial transactions to shareholders and various
taxing authorities • Tax return preparation• Control Expenses• Monitor and safeguard company assets, detect and prevent
fraud• Make decisions and plan for the future• Provides historical record for budgeting
Who uses payroll data?
• General Accounting – prepares journal entries for financial statements and internal reports.
• Cost Accounting – records hours and rates and attaches them to operational activities.
• Financial Analysis and Budgeting – determines future expenses and forecasts profitability of operations.
Examples of Transactions
• Taking an order for company’s product• Purchasing raw materials• Manufacturing products• Warehousing finished products• Shipping the product• Billing the customers• Receiving payment from customers• PAYING EMPLOYEES
Transaction Flow
Transaction Journal
Subsidiary Ledger General Ledger
Financial Statements
Chart of Accounts
All transactions are posted to an account. All accounts are assigned a number.The Chart of Accounts is a listing of all accounts in the accounting system.Typical account numbering scheme:• 1000 Assets• 2000 Liabilities• 3000 Equity• 4000 Revenue• 5000 Expenses
Chart of Accounts
Asset Accounts Liability Accounts
Revenue Accounts
Expense Accounts
Equity Accounts
Asset Accounts
Tangible and intangible items owned by a company.
• Computers• Software• Equipment• Furniture • Land• Buildings
• CASH!
Liability AccountsDebt owed by the company. Claims against the company’s assets that will be paid in the future.
• Taxes withheld but not yet paid• Contributions to a company benefit plan but not yet paid (401K,
Union pension benefits)• Leasing contracts • Bank Loans
Equity Accounts
The net worth of the company. Also known as shareholders equity or Capital.
• Retained Earnings - company earnings not yet distributed• Contributed Capital – investments by owners• Common Stock
Revenue Accounts
Income recognized for goods sold and services rendered
• Gross Revenue – income from all sources
• Net Revenue – gross revenue minus cost of sales or cost of goods sold
Expense Accounts
Cost of goods or services used in the process of generating revenue.• Salaries and wages• Employer’s portion of payroll tax• 401k Match• Supplies• Rent• Insurance
Every transaction is recorded twice and must have a debit and a credit.
• “DR” = Debit• “CR” = Credit
The use of equations to track financial activity.
The debits and credits must balance.
Double Entry Accounting
Debits and Credits
Debits are recorded on the LEFT side and Credits are recorded on the RIGHT side.
“T” Accounts – A picture to conceptualize transaction flow
Debit Credit
Think of the “r” in Credit on the “right” side of the “T” Account
Normal Balances of Accounts
Asset Accounts – DEBIT
Liability Accounts – CREDIT
Equity Accounts – CREDIT
Revenue Accounts – CREDIT
Expense Accounts - DEBIT
Account Increases and Decreases
ASSETS: Amounts increasing an asset are recorded as DEBITS Amounts decreasing an asset are recorded as CREDITS
LIABILITIES: Amounts increasing a liability are recorded as CREDITS Amounts decreasing a liability are recorded as DEBITS
EQUITY: Amounts increasing equity are recorded as CREDITS Amounts decreasing equity are recorded as DEBITS
REVENUE: Amounts increasing revenue are recorded as CREDITS Amounts decreasing revenue are recorded as DEBITS
EXPENSES: Amounts increasing an expense are recorded as DEBITS Amounts decreasing an expense are recorded as CREDITS
Account Increases and Decreases
Account Increases and Decreases
Asset and Expense Accounts
Debit CreditIncreases Decreases
Liability, Revenue, Capital Accounts
Debit CreditDecreases Increases
Journal
The chronological record of daily transactions of a business.
• Double-entry accounting system used
• Every transaction entry is recorded twice: a debit and a credit
SUBSIDIARY LEDGERS
Transactions of similar nature related to a specific functional area of the business are recorded in a subsidiary journal.• Accounts Payable• Cash Disbursement • Accounts Receivable• Sales• Cash Receipts
• PAYROLL !
GENERAL LEDGER
All transactions from the subsidiary ledgers are posted by account number to the General Ledger.
Summarization of all transactions are used to create financial statements.• Balance Sheet• Income Statement or Profit and Loss
Statement• Cash Flow Statement
TRIAL BALANCE
At the end of the period all the debits and credits are added up and must balance.
The Trial Balance shows all debits and credits.
INCOME STATEMENT
• Record of activity for a specific period of time, monthly, quarterly, semi annually, and/or annually
• Reports Revenue and Expenses
Revenue minus expenses = Net income
BALANCE SHEET
• A snapshot of the company’s position in a single point in time.
• Divided into 3 sections
• Reports assets, liabilities, and capital (equity)
Assets = Liabilities + CapitalOr
Assets – Liabilities = Capital
ACCRUALS AND REVERSALS
Accruals recognize transactions regardless of the transfer of cash.
• Matching Principle: Expenses are matched in the period with the revenues they produce.
• Accruals and reversals are used to record transactions in the correct period.
ACCRUAL EXAMPLE
Payroll Expense Accrual:• Biweekly payroll• Normal work week Sunday – Saturday• Pay period Dec. 23 through Jan. 5• Payday January 11, 2013• Expense 6 business days in December• Expense 4 business days in January
December 23 – 31 must be expensed in December, January 1 – 5 must be expensed in January in order to correctly report expenses of the period.
Month Sun Mon Tue Wed Thu Fri Sat
December2012
23
24
25
26
27
28
29
January2013
30
31
1
2
3
4
5
6
7
8
9
10
11
PAYDAY
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
1
2
General Journal Example
J & R CONSULTING, INC.
GENERAL JOURNAL
Acct
DR CR Type
1/15/2013 Salaries & Wages 510,000 expense This entry records the gross payroll
Social Security Tax Payable - EE 31,000 liability for semimonthly period ending 01-15-12
Medicare Tax Payable - EE 7,250 liability and taxes payable.
Federal Withholding Tax Payable 61,750 liability
State Withholding Tax Payable 10,000 liability
Net Pay 400,000 liability
510,000 510,000
1/15/2013 Payroll Tax Expense 55,750 expense This entry records employer's portion
Social Security Tax Payable - ER 31,000 liability of payroll taxes.
Medicare Tax Payable - ER 7,250 liability
Federal Unemployment Tax Payable 4,000 liability
State Unemployment Tax Payable 13,500 liability
55,750 55,750
1/15/2013 Net Pay 400,000 liability This entry records payment to the
Cash 400,000 asset employees.
400,000 400,000
General Journal Example
1/16/2013 Social Security Tax Payable - EE 31,000 liability
Medicare Tax Payable - EE 7,250 liability This entry records the payment of federalSocial Security Tax Payable - ER 31,000 liability taxes by electronic transfer.Medicare Tax Payable - ER 7,250 liability Federal tax liability is >$100K Federal Withholding Tax Payable 61,750 liability (one day deposit rule)Cash 138,250 asset
138,250 138,250
1/17/2013 Office Supplies 5,000 expense This entry records ordinary businessRent 20,000 expense expenses posted in the accountsTravel & Entertainment 30,000 expense payable system that will be paid when due.Account Payable 55,000 liability
55,000 55,000
1/18/2013 Accounts Receivable 5,000,000 asset This entry records billings to clientsRevenue 5,000,000 revenue for services rendered.
5,000,000 5,000,000
1/20/2013 Cash 3,500,000 asset This entry records cash received fromAccounts Receivable 3,500,000 asset clients.
3,500,000 3,500,000
General Journal Example
1/31/2013 Salaries & Wages 510,000 expense This entry records the gross payroll
Social Security Tax Payable - EE 31,000 liability for semimonthly period ending 01-31-12
Medicare Tax Payable - EE 7,250 liability and taxes payable.
Federal Withholding Tax Payable 61,750 liability
State Withholding Tax Payable 10,000 liability
Net Pay 400,000 liability
510,000 510,000
1/31/2013 Payroll Tax Expense 55,750 expense This entry records employer's portion
Social Security Tax Payable - ER 31,000 liability of payroll taxes.
Medicare Tax Payable - ER 7,250 liability
Federal Unemployment Tax Payable 4,000 liability (Total payroll taxes due for the payroll of
State Unemployment Tax Payable 13,500 liability 01-31-12 exceed $100K and will be paid
02-01-12 but are not recorded here since
55,750 55,750 this is only for the month of January.)
1/31/2013 Net Pay 400,000 liability This entry records payment to the
Cash 400,000 asset employees.
400,000 400,000
1/31/2013 Provision for Income Taxes 50,000 expense This entry records an estimate of income
Accrued Taxes 50,000 liability taxes that will be paid.
50,000 50,000
PROFIT AND LOSS STATEMENT
J & R Consulting, Inc.Statement of Operations
January 31, 2013
Net Revenue 5,000,000
ExpensesSalaries 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
ASSETS
CURRENTCash 3,561,750Accounts Receivable 5,560,000TOTAL CURRENT ASSESTS 9,121,750
PROPERTY AND EQUIPMENTFurniture, Fixtures, & Equipment 1,000,000Accumulated Depreciation (50,000)PROPERTY AND EQUIPMENT, NET 950,000
TOTAL ASSETS 10,071,750
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIESAccounts Payable 55,000Social Security Tax Payable 62,000Medicare Tax Payable 14,500Federal Withholding Tax Payable 61,750State Withholding Tax Payable 20,000Federal Unemployment Tax Payable 8,000State Unemployment Tax Payable 27,000Federal Income Taxes Payable 50,000TOTAL CURRENT LIABILITIES 298,250
STOCKHOLDER'S EQUITYCommon Stock 10,000Current Earnings (Loss) 3,763,500Retained Earnings 6,000,000TOTAL STOCKHOLDERS' EQUITY 9,773,500
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 10,071,750
J & R ConsultingBalance SheetJanuary 2013