Accounting & Bookkeeping & Small Business Forum

[mperor3]

Hi,

I am currently a UAC student and I am loving the program it has taught me more about bookkeeping and accounting than my previous college courses has. I fully understand the program and now something has got me thinking.....

I notice that all the business examples in the program; showed that payroll was always paid before the month ended. Usually on the 15th or the 31st.

What if "company A" paid their employee for the pay period of 15-31 of August but wrote checks to them on the 5th of September, for that pay period.

Would August's balance sheet have a payroll liability account?

Or would the checks that were written for Aug. pay period roll over to September's balance sheet as credit to bank account and debit to payroll liabilities?

Would this affect the income statement as well?

These would be post balance sheet events?..If so, these were not explained in the program.

[stasia2003]

mperor3 wrote: Hi,

I am currently a UAC student and I am loving the program it has taught me more about bookkeeping and accounting than my previous college courses has. I fully understand the program and now something has got me thinking.....

I notice that all the business examples in the program; showed that payroll was always paid before the month ended. Usually on the 15th or the 31st.

What if "company A" paid their employee for the pay period of 15-31 of August but wrote checks to them on the 5th of September, for that pay period.

Would August's balance sheet have a payroll liability account?

Or would the checks that were written for Aug. pay period roll over to September's balance sheet as credit to bank account and debit to payroll liabilities?

Would this affect the income statement as well?

These would be post balance sheet events?..If so, these were not explained in the program.


Here are the entries.

To report the accrual:

Debit Salaries/Wages Expense
Credit Salaries/Wages Payable

To report the payment of the payroll:

Debit Salaries/Wages Payable
Credit Bank Account


The expense will show up in the month that it was accrued which will be your income statement activity. The payment of the expenses won't show up until the following month. So I guess you can look at it as saying that the income statement is ahead of the balance sheet as far as activity is concerned.

The September balance sheet will reflect activity from the previous month's payroll as well as the current month's payroll liabilities.

Anyone else wanna add to this?

[dp1903]

Quote: What if "company A" paid their employee for the pay period of 15-31 of August but wrote checks to them on the 5th of September, for that pay period.

Would August's balance sheet have a payroll liability account?

On an accrual basis, Yes, August's balance sheet will show wages and payroll taxes payable.

Wages or Salaries Expense [Debit in August]
FICA Tax Payable [Credit in August]
Federal Income Taxes Payable [Credit in August]
Other deductions Payable [Credit in August]
Wages or Salaries Payable [Credit in August]

So, on the income statement for August the Wages Expense shows up because that is when the expense was actually incurred even though not paid. On the balance sheet the Payroll Liabilities show up in August since that is the month they were incurred, though not paid.

On Cash basis accounting you would not accrue the above but only record the transaction in September when it occurs.

[mperor3]

dp1903 wrote: Quote: What if "company A" paid their employee for the pay period of 15-31 of August but wrote checks to them on the 5th of September, for that pay period.

Would August's balance sheet have a payroll liability account?

On an accrual basis, Yes, August's balance sheet will show wages and payroll taxes payable.

Wages or Salaries Expense [Debit in August]
FICA Tax Payable [Credit in August]
Federal Income Taxes Payable [Credit in August]
Other deductions Payable [Credit in August]
Wages or Salaries Payable [Credit in August]

So, on the income statement for August the Wages Expense shows up because that is when the expense was actually incurred even though not paid. On the balance sheet the Payroll Liabilities show up in August since that is the month they were incurred, though not paid.

On Cash basis accounting you would not accrue the above but only record the transaction in September when it occurs.


So, on the income statement, there would not be a payroll tax expense? Salaries expense is there because it happened on that month but since that pay period hasn't been paid yet, than that payroll tax account shouldn't show up on the income statement?

[stasia2003]

mperor3 wrote: dp1903 wrote: Quote: What if "company A" paid their employee for the pay period of 15-31 of August but wrote checks to them on the 5th of September, for that pay period.

Would August's balance sheet have a payroll liability account?

On an accrual basis, Yes, August's balance sheet will show wages and payroll taxes payable.

Wages or Salaries Expense [Debit in August]
FICA Tax Payable [Credit in August]
Federal Income Taxes Payable [Credit in August]
Other deductions Payable [Credit in August]
Wages or Salaries Payable [Credit in August]

So, on the income statement for August the Wages Expense shows up because that is when the expense was actually incurred even though not paid. On the balance sheet the Payroll Liabilities show up in August since that is the month they were incurred, though not paid.

On Cash basis accounting you would not accrue the above but only record the transaction in September when it occurs.


So, on the income statement, there would not be a payroll tax expense? Salaries expense is there because it happened on that month but since that pay period hasn't been paid yet, than that payroll tax account shouldn't show up on the income statement?

Actually payroll taxes will show up on the income statement. You have to record FICA for the employer and other employer paid deductions.

[dp1903]

Sorry, I tried to show more of what a real payroll would look like, but left out the Employer's payroll tax expense. I'll do it over with numbers.

Wages or Salaries Expense $10,000.00 [Debit in August]
Employer's FICA Tax Expense 765.00 [Debit in August]
Employer's FICA Tax Payable 765.00 [Credit in August]
Employee's FICA Tax Payable 765.00 [Credit in August]
Federal Income Taxes Payable 2,000.00 [Credit in August]
Other deductions Payable 0.00 [Credit in August]
Wages or Salaries Payable 7,235.00 [Credit in August]

All these expenses and liabilities are incurred in August and, therefore, show up on the income statement or balance sheet in August as a result on an accrual basis. The Employee's share of FICA Taxes and Federal Income Tax is taken out of the gross amount of wages so that the net pay is only 7,235.00. The Employer's FICA Tax Expense is calculated at 7.65% of the employees' wages. 6.2% is social security and 1.45% if medicare. On a real payroll these might be broken out seperately. I posted them together for simplicity.

Federal Income Tax comes out of the employee's gross pay. It is part of gross wages or salaries expense. Hope that is clearer.

You may also have federal and state unemployment tax expense and liabilities, an employer tax expense, depending on the amount of wages that has been paid thus far during the year, but I left those out to make it simpler.