Manual Project Ch 5

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  1. The 4 characteristics of why payroll is considered a separate cycle
    • 1. Employees retained long-term
    • 2. Disbursements require special consideration because of tax laws and fringe benefits
    • 3. Separate bank accounts and journal for disbursements
    • 4.Purchase and disbursements for payroll services usually recorded at same time in same journal (time span)
  2. Payroll Subcycles 2
    • 1.Receipt and payment of employee services
    • 2.Payroll accruals
  3. Accountant's Objectives 6
    • 1. Record all transaction
    • 2. Correct amounts
    • 3. Chart of account classification
    • 4. Proper period
    • 5. Accrued payroll and taxes correct
    • 6. Material disclosures in statements and footnoots
  4. Receipt of payment for employee services
    Actions and related document 5
    • 1. Hire employees / Personnel record, deduction authorization form
    • 2. Receive employee services / time card
    • 3. Pay for employee services / Payroll check, check to others
    • 4. Record in journal and sub. ledger / Payroll journal, Employee earnings sub. ledger
    • 5. Summarize journal & post to ledger / General ledger
  5. Hire employees
    Employees interviewed and agreements are made regarding pay, benefits, withholding, etc.
  6. Personnel record
    Record including: employee information such as date of hire, pay, deductions, and date of termination.
  7. Receive employee services
    Employee work, they can be paid hourly, commission, piece-rate, salary and some are paid for overtime
  8. Time card
    Document showing time employee started and stopped working and total hours worked
  9. Pay for employee services 4
    • 1. Summarize time cards and calculate gross pay, withholding, and net pay
    • 2. prepare and distribute checks
    • 3. Make disbursements for withholding from employees
    • 4. Calculate employer payroll taxes and fringe benefits
  10. Payroll check
    document to pay employee net pay
  11. Check to others
    document to pay withholding from employees and employer taxes and fringe benefit
  12. Record in journal and sub. ledger
    All payroll transactions are recorded in payroll journal and posted to the employee earnings subsidiary ledger
  13. Payroll journal
    Columns included: Date, Employee, reg hours, reg pay, overtime hours, overtime pay, gross pay, deductions-FICA, Fed inc. tax, net pay, check #
  14. Employee earnings subsidiary ledger
    • Columns includes: Period ending, date paid, reg hours, overtime hours, gross pay, FICA, Fed inc. tax, net pay
    • cumulative annual totals
  15. Summarize journal and post to ledger
    payroll journal is totaled and posted to general ledger
  16. Payroll and Payroll Tax Accruals
    Actions and Related Documents 3.
    • 1.Determine payroll and payroll tax accruals / payroll accrual memo
    • 2.Record in journal / general journal
    • 3. Post to ledger / general ledger
  17. Determine payroll and payroll tax accruals
    • employees pay needs to be accrued for hours work that hasn't been paid by balance sheet date
    •  tax and fringe benefits often get paid at a later date the amounts must be accrued to keep with the matching principle
  18. Payroll accrual memo
    • indicates the amount of payroll and payroll tax accrual for a period.
    • Most companies don't use
  19. Internal control
    adequate documents and records
    time cards to maintain hours. Check instead of currency as proof of amounts paid
  20. Internal Control
    • 1. Hire adequate personnel
    • 2. Appropriate wage rate set
    • 3. Approved regular and overtime hours
    • 4. Dismissal of personnel
  21. Internal control
    Use of time clocks
    prevents fraudulent or unintentional misstatement of time worked. And control to make sure employees clock-in only their own cards
  22. Internal control
    Segregation of duties
    People who should not access payroll checks
    • 1. Hiring or dismissals 
    • 2. Collects and approve time card
    • 3. Preparing payroll checks
    • 4. Accounting records
    • 5. Payroll bank rec.
  23. Internal Control
    Impress payroll cash
    cash receipt
    weekly transfer from general cash account to payroll account of net pay to employees
  24. Internal Control
    Impress payroll cash
    cash disbursement
    Only employee checks that are cashed
  25. Internal control 
    Independent checks on performance
    • 1. Bank reconciliation
    • 2. Recalculate hours and compare to contracts and withholding to tables
    • 3. Account for all time cards and checks
Card Set:
Manual Project Ch 5
2014-10-26 17:12:21
Accounting 406

Payroll Cycle
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