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Chapter 1
Payroll Fundaments 2
| Term | Definition |
|---|---|
| Accounting Process (4 steps) | 1. Transaction 2. Journals 3. Ledger 4. Financial statements |
| Payroll Dept. Responsibility | to ensure payroll transactions are accurately recorded in the accounting system of the organization. |
| Payroll information | tracked from payroll transactions through General Ledger to the financial statement of the organization. |
| General Ledger | used to keep an organized record, by account, of financial transactions and holds information required to prepare financial statements. |
| General Ledger elements (5) | 1. Account name 2. Opening balance 3. Reference 4. Debit and Credit transactions 5. Closing balance |
| General Ledger balances | two primary statements used: 1. Income statement 2. Balance sheet |
| Income Statement | presents the revenue, expenses and net profit /loss of a company during a period of time. Purpose is to determine profit/loss. (3- mon., 6-mon., or 12-mon. periods). |
| Balance Sheets | financial statement presenting a summarized list of amounts of all the company's assets, liabilities, and equity at a point of time. |
| Trial Balance | used to ensure every debit recorded has a corresponding credit. |
| General Ledger Types of entries (2) | 1. Debits 2. Credits |
| Debit entries | recorded in the left column, increases balance and decreases credit (Asset and Expense). |
| Credit entries | recorded in the right column, increases balance and decreases debit (Liability, Revenue, and Equity). |
| Accounting Equation | the foundation of the accounting process. Two sides must always stay in balance. |
| Assets = | Liabilities + Owners' Equity |
| Owners' Equity = | Contributed Capital + Retained Earnings |
| Assets (expanded) = | Liabilities + Contributed Capital + Retained Earnings |
| Net Income/Loss = | Revenue - Expenses |
| Financial Transactions (5) | 1. Assets 2. Liabilities 3. Revenue 4. Expense 5. Owners' equity (shareholders' equity) |
| Assets (+DR, -CR) | items of value owned by a company (cash, inventory, equipment). |
| Liabilities (-DR, +CR) | debts or financial obligation of a company (Accounts payable and payroll). |
| Revenue (-DR, +CR) | recorded income earned by a company during the accounting cycle (sale of merchandise, rental of property, interest, and lending money). |
| Expense (+DR, -CR) | costs incurred by a company in the process of earning revenue during a period of time (payroll and group benefit expenses). |
| Equity (net assets -DR, +CR) | amount available when liabilities are deducted from assets of a company. |
| Contributed Capital | cash payments or assets the owner has made to the company. |
| Retained Earnings | accumulated profits to date less any dividend amounts or other amounts paid to investors. |
| Journalize a transaction | create a journal entry which reflects the financial impact of a particular transaction. |
| Journal entry | record each debit or credit amount in the appropriate account. |
| Journal entry contains (5) | 1. Journal entry reference or number 2. Date of transaction 3. Debit and Credit amounts to be applied 4. Total of debit and credit entries 5. Explanation of the transaction |
| Double entry method | a standard method of accounts, ensuring the debit and credits equal/balance. |
| Posting | process of transferring information from journal entry to account in the General Ledger. |
| T-account | standard transaction data entry method showing fundamental principles of the double-entry method of accounting. |
| Accounting Periods (3) | 1. 12 month calendar period (ends same date every yr.) 2. Monthly (ends last day of ea. mon.) 3. Four or Five week months. |
| Payroll register | used to accumulate information from all the company's employees for a pay period/multiple pay periods. |
| Salaries and wages expenses (2) | classified into two types (Labour Costs): 1. Direct labour costs 2. Indirect labour costs. |
| Direct (variable) labour costs | are payroll costs incurred to pay employees performing a particular service, work, or sales activity. |
| Indirect (fixed) labour costs | are payroll costs incurred to pay employees who perform administrative functions. |
| Employer statutory expenses (11) | 1. C/QPP 2. EI 4. QPIP 5. Ont. & BC (EHT) 6. MB & NFL Health and Post-Secondary Education Tax 7. QC Health Services Fund Contributions 8. Contributions related to Labour Standards 9. WSDRF contributions & WC/CNESST premiums |
| Record employer's statutory requirements (2) | two journal entries required: 1. one to account for statutory deductions withheld from employees 2. one to account for the employer's expenses for statutory requirements |
| Payroll journal entries (4) | 1. debit EMPLOYER expenses for salary/wage expense 2. credit EMPLOYEE amounts held and owing to a third party 3. credit EMPLOYEE net pay amounts for salaries/wages 4. credit other EMPLOYEE deductions (legal, union, compulsory/voluntary) |
| Employer expense journal entries (2) | 1. debits to accounts for the employer's payroll expenses 2. credits to payable accounts for the amounts owing |
| Employer-Paid Benefit Premiums (6) | 1. Group term life insurance premiums 2. Provincial medical premiums 3. Pension plan payments 4. Deferred profit-sharing plan payments 5. Sick leave 6. Other employer-provided leaves |
| Payroll expenses (3) | 1. employee salary/wage expenses 2. employer expenses for statutory requirements 3. employer-paid employee benefits required by company policy or collective agreement |
| Accruals (5) | 1. WCB (Payroll, continuous) 2. Vacation (Payroll, continuous) 3. Sick Leave (continuous) 4. Employer Health Taxes (continuous) 5. Labour costs (Payroll, specific) |
| Types of accruals (2) | 1. continuous (ongoing expense over a number of periods, paid later) 2. specific (incurred in one period and reallocated to another) |
| Most common continuous accruals | WCB premiums and vacation pay. |
| Most common specific accrual | labour costs. |
| Stale-Dated Cheques | becomes 6 months old and not cashed |
| Workers' Compensation Accruals | premiums depend on jurisdiction, based on actual or estimated payroll amounts. |
| Vacation Accruals | journal entries are posted as expense incurred and when leave is taken. |
| Sick Leave Accruals | accrue in the same manner as vacation. |
| Employer Health Taxes | is accrued with each payroll journal (BC, MB, NFL, ONT, QC). |
| Labour Costs Accruals | expenses incurred in one period, but not paid until the next. |
| Account reconciliation (3) | 1. Review all transactions 2. Match transactions with supporting documents 3. Investigate and resolve any discrepancies of concern |
| Journal entries | issues to examine when preparing entries include: 1. account - asset, liability, owners' equity, revenue or expense 2. normal balance of the account - debit or credit 3. entry intended to increase or decrease the account balance |
| Closed accounting period | no further journal entries can be posted to the General Ledger for this period. |
| General Ledger account balances | ensure the journal entries have been posted to the correct accounts. |
| Level of account analysis | will depend on the account type and the company needs. |
| Requirements related to payroll withholdings | payroll liability accounts should be examined in detail. |
| Prior to General Ledger entries | review the line items to ensure debits and credits have been recorded correctly. |
| Budget | a monetary plan a company uses to set financial goals, to measure financial performance, and keep finances on track. |
Created by:
Moorebaier
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