Payroll Accounting - Principles Of Accounting
Page 1 of 7
Principles Of Accounting Principles of Accounting Made Easy Home
Topics
Pricacy Policy ► Accounting
Search
Contact Us ► Payroll Taxes
► Pay Payroll
► Payroll Services
Payroll Accounting System Find the Right Accounting Software Free Vendor Comparison & Shortlist! Accounting.TechnologyEvaluation.com
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Payroll Accounting
Business reporting
www.Amadeus.com/BigData
New Travel Whitepaper Unlocks Employees are paid either a wages or a salary. Secrets Big Data Holds For Travel The term payroll refers to the wages paid to a firm’s employees for a certain pay period. The pay period is usually weekly, monthly, or semi monthly.
Records of Attendance There are many different ways in which the attendance of employees is recorded. Two main methods are clock cards and time sheets. Clock cards A mechanical device on the factory floor that records the precise hours that the employee works for.A clock card for each employee is placed in a rack with a time recorder clock. The employee inserts his/her card into the time recorder clock on arrival at work where it is stamped with the time. A similar pattern is followed when the employee leaves the work place.
/ http://www.principlesofaccounting2.com/ Time Sheets A record of hours worked kept by the employee himself. Those employees who work away from the premises of the business may be required to complete a time sheet showing the hours worked each day. Sometimes the time spent travelling to and from work is recorded separately to actual working time
Remuneration Methods There are several ways in which wages are calculated. Two main methods of calculating wages are time basis and piece rate basis. Time basis
Time rate
(or day rate)
The employee is paid an agreed amount for each hour worked (often up to a set number of hours) each week. Wages are calculated by multiplying the fixed rate per hour by the number of hours worked. The standard rate per hour is called basic rate If the hours worked exceeds a per-set maximum, OVERTIME is often paid at a higher rate, say, a half, which means 1 1/2x basic rate
time and
This Method is appropriate if the quality of the output is more important than the
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ quantity.
Piece rate basis
The employee is paid an agreed amount for each unit produced or each task performed. Under this method, wages are directly related to the quantity of work produced and this is an incentive to employees
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013
Payroll Accounting - Principles Of Accounting
Page 2 of 7
to work more.
Differential piecework It offers high rates as production increases. Gross pay The total wages which an employee has earned is known as Gross Pay It
is what an employee earns -Not what the employee receives
This includes: Basic pay
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Overtime Bonus
Net pay This is the final amount the employee is paid and receives either with a live paper check or a direct deposit. It is the take home pay or or what is deposited into the bank a/c. From the gross pay figure statutory deductions and voluntary deductions are made in order to calculate the amount of “take home pay” or Net Pay. Statutory deductions: The deductions from an employee‘s gross pay that are required by law Income Tax: An employer must deduct the correct amount of income tax from the gross pay of each employee. This must be forwarded to the appropriate government department at regular intervals (often monthly). Social Security: The employer must calculate and deduct social security / national insurance contributions (NIC) from the gross pay of each employee. Such deductions allow employees to benefit from services provided by the government such as unemployment benefits, health benefits, and retirement benefits. In addition to the contribution by the employee, a larger contribution is also made by the employer. The total of these contributions must be forwarded by the employer to appropriate government department at regular intervals (often monthly or quarterly). Non-Statutory deductions
/ http://www.principlesofaccounting2.com/ Voluntary deductions are deductions which an employee chooses to have deducted from his/her gross wages. Voluntary deductions or non-statutory deductions include the following:
Contribution to Subscriptions to trade unions Subscriptions to social clubs Donations to charities Pension contributions
Pay Slip When an employee is paid, the employer provide a pay slip which shows the gross pay and net pay and gives details of the various deductions A pay slip includes
An employee’s gross pay
Deductions from gross pay and Net pay
Payroll register The employer keeps these details of each employee and this is known as a payroll register. Book keeping entries for Payroll
After the wages have been calculated and payroll register is completed, entries are made in the books. The simplified bookkeeping entries involve an expense account for salaries and wages and accounts for each of the main types of statutory and voluntary deductions. An employer often has to forward amounts deducted from employees’ wages to the appropriate government department or organization at monthly intervals. Until these amounts are paid, the accounts will have credit balances as they are liabilities of the business. Entry #1: To record employees’ withholdings and employer’s contribution. a pension scheme
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013
Payroll Accounting - Principles Of Accounting
Page 3 of 7
Entry #2: To record the remittance of payroll withholdings and employer’s contribution.
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/
Payroll Accounting Procedure 1.
Answer the following
a)
What details should a pay slip show by law?
b)
What is a clock card?
c)
What is the formula to calculate wage on time rate?
d)
What information should a payroll register include
e)
For what kind of jobs is piece work method more suitable?
/ http://www.principlesofaccounting2.com/ f)
Give two examples of statutory deductions?
g)
Name two Non-statutory deductions
2.
Multiple Choice questions
Underline the correct answer
a)
Sara has a working week of 40 hours for which she is paid $10 per hour.
For hours worked in excess of this she is paid 1 ¼ times the basic rate. Sara worked a total of 50 hours in the 1st week of July. What is Sara’s gross pay for this week? A
$400
B
$500
C
$525
D
$625
b)
Shathira works 50 hours a week for which she is paid $10 per hour.
For hours worked in excess of this she is paid 1 ½ times the basic rate. Shathira worked a total of 55 hours in the 1st week of February. What is Shathira’s basic pay for this week? A
$425
B
$500
C
$550
D
$575
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ c)
A business pays a weekly government tax of 10% on the total weekly wages to employees.
For the week of 30April the total paid to employees amounted to $5000 Which entries will record the payment on 30 April?
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013
Payroll Accounting - Principles Of Accounting
Page 4 of 7
Wages account Debit Credit $ 4500 5000
A B C D 3.
$
Government tax account Debit Credit $ 500 500
4500 5000
Bank statement Debit Credit
$
$
500 500
5000 5500
$ 5000 5500
Calculate the Gross pay
a) Suppose Shazna work for $8.25 per hour. She works 40 hours during the week. What is her gross pay at the end of the week?
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/
b) Nizam works in a laundary service he is paid $1.5 for each peice he wash. Calculate his wage for a month if he washes 150 pieces during the month?
c) Naruto works a regular work week of 40 hours for $3.50 an hour, plus one hour overtime each day. Overtime is paid 1 ½ basic rate. What is his gross pay? 4.
Hamdha has been in business for a year.
She had one employee. The employee was paid for 120 hours at $5 per hour, and six hours overtime at time and a half. $136 was deducted from pay for tax and social security. Hamdha must pay $45 employer’s contribution to social security. The total tax and social security is due to be paid to the tax authorities on 19 August. Required a)
Prepare journal entries for wages and social security contributions for July 2009.
Narratives are not required. (Show your calculations.
/ http://www.principlesofaccounting2.com/ 5. Shameem is a trader. He employs two part-time staff. Each work 50 weeks a year. One is employed for 25 hours a week at $6 per hour. The other works 30 hours each week at $8 per hour (a) ii)
i)
Calculate the total wages Shameem pays the part-time staff during the year
One additional cost Shameem would incur
Both employees have asked for a 10% increase in pay. Shameem can use the information in his final accounts when considering this request (b) Explain three different ways in which the final accounts can help Shameem to decide about the pay rise
6.
CROSSWORD PUZZLE
Across
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013
Payroll Accounting - Principles Of Accounting
Page 5 of 7
1. ………. pay is rate for the job, and is what you expect to receive for the normal periods work 2. Statutory deductions means the deductions from employees pay that are required by ….. 3. Hours in excess of over and above the agreed basic hours for the period. 4. The additional percent that employers pay when employees work over and above the agreed basic hours for the period is known as the overtime………………… 5. ………….. wages is the amount an employee earns before deduction is made for payroll taxes and other items. 6. (Wages = Hours Worked × Basic rate of pay per hour) is the formula to calculate……… 7. …………………………states the gross pay and deductions from the gross pay. 8. Employer’s take –home pay is ……………pay Down
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/
1. Payment for labour or services to a worker, especially remuneration on an hourly, daily, or weekly basis or by the piece.
2. ……………. Tax is an example of PAYE (Pay As You Earn) 3. A record of hours worked kept by the employees.
4. A non statutory deduction. 5. An amount is paid for each unit or task successfully completed, acting an INCENTIVE to produce more. 6. Fixed compensation for services, paid to a person on a regular basis.
Worksheet on payroll accounting Problems based upon time rate Wage rate per hour- $2
Qus.1.
Javed works for six hours and prepared 100 units. Anwar works for seven hours and prepared 90 units. Calculate the earning of Javed and Anwar for the day as per time rate.
Qus.2. Calculate monthly wages due to Abdulla and Hameed as per the following dataWorking hour in a dayDaily wages
7 - $6
/ http://www.principlesofaccounting2.com/ Working day in a month- 28
Abdulla was absent for two days and Hameed for five days during the month.
Problems based upon piece rate Qus.3. Calculate the wages of Iqbal and Ali from the data given below based on piece rate workWages per chair
$1.2
Number of chairs made by Iqbal in a day – Number of chairs made by Ali in a day
-
12 14
Calculate monthly wages received by Iqbal and Ali if there are twenty six working days in a month.
Qus.4.Calculate total monthly remuneration of three workers Mariyam, Fathima and Aysha from the following data. Actual production during the month. Mariyam – 1700 units Fathima Aysha
– 1500 units – 1900 units
Piece work rate is $ 2 per unit.
Qus.5. Following is the detail of packets prepared during the week by Amit and Sumit: Amit
Sumit
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Saturday
10
12
Sunday
11
14
Monday
09
06
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013
Payroll Accounting - Principles Of Accounting
Page 6 of 7
Tuesday
—
Wednesday
07
10 09
Thursday
08
—
If the rate of wages is $2.5 per packet calculate weekly wages for Amit and Sumit.
Problem based on both piece rate and time rate Qus.6. Following data supplied to you for the calculation of wages:Daily working hours in the factory—8 hours Wages per hour
—$1.2
Wages per piece
—-$0.80
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Production of X and Y during the week in units are:X
Y
Saturday
15
18
Sunday
16
15
Monday
12
16
Tuesday
14
10
Wednesday
10
12
Thursday
11
14
Friday is holiday. Calculate weekly wages as per piece rate and time rate and find out the difference in wages.
Qus.7.In an assembly shop of motor cycle factory 4 workmen A, B, C and D work together as a team and are paid on group piece rate. They also work individually on day rate jobs. In a 44 hour week, the following hours have been spent by A, B, C and D on group piece work Viz. A – 40 hours, B – 40
/ http://www.principlesofaccounting2.com/ hours, C – 30 hours and D – 20 hours. The balance of time has been booked by each worker on day work jobs. Their hourly rates are:
A
– $ 0.50
B
– $ 0.75
C
– $ 1.00
D
– $ 1.00
The group piece rate is $ 1.00 per unit and the team has produced 150 units. Calculate the gross weekly earnings of each workmen taking in to consideration that each individual is entitled to Dearness allowance of $ 20 per week.
Problem based on over time Qus.8.Calculate the normal and overtime wage payable toYounas from the following data. Days
Hours worked
Saturday
9
Sunday
4
Monday
8
Tuesday
10
Wednesday Thursday
9 11
Normal working hours 8 per day Normal rate is $ 1 per hour. Over time rate :- Up to 9 hours in a day at single rate and over 9 hours at double rate.
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Qus.9. Calculate wage due to Naeem concerning who the following data applied.
Normal working hours in a week – 44 hours.
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013
Payroll Accounting - Principles Of Accounting
Page 7 of 7
Actual booked hours Rate per hour:
– 50 hours. Normal – $1.25
Problems based upon gross salary and net salary Qes.10. Following is the particular of wages for Murad during the year:Basic Pay
– $ 25000
Bonus
– 1/5 of basic pay
Income tax deduction – 10% Calculate gross and net salary of Murad.
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/ Ques.11. Robert is a employee of Nestle limited. He worked 250 hours during the
month. Wages are $2.5 per hours.
Following are the deductions from his salary(i) (ii)
Income tax-5% of gross salary Insurance-$13
(iii)
Co-operative society-$10
(iv)
Pension Fund contribution-12% of gross salary
Calculate the net amount received by the Robert for the month. Incoming search terms:
payroll accounting entries
payroll gross accounting entry payroll wages paid accounting entry
http://www.principlesofaccounting2.com
/ http://www.principlesofaccounting2.com/
http://principlesofaccounting2.com/ http://principlesofaccounting2.com/
http://principlesofaccounting2.com/topics/payroll-accounting/
8/12/2013