12 - Accounting for payroll Flashcards
what are payroll transactions
= entries made in respect of salaries and wages
what is gross pay
total amount earned before deductions
what are statutory deductions
- income tax and social security contributions because the law ‘statute’ requires them
- income tax is under a pay-as-you-earn system
- paid in regular intervals
what are voluntary deductions
- can only be deducted from gross salary if employee has given written permission to do so
- eg pension contributions, trade union fees and give-as-you-earn (GAYE)
what is net pay
‘take home’ pay once all deductions made
what are an employers social security contributions - statutory
- employer must pay additional social security contributions for each employee
- is another form of tax but the difference is that it is only suffered by employer
what are an employers pension contributions - voluntary
- employer must make a voluntary contribution to employees pension
- additional to gross pay
- increases total cost of employing individuals
what is the full cost of employing an employee
GROSS PAY + employers social security contribution to authorities + employers pension paid to pension scheme
within GROSS PAY:
- net pay
- income tax and employees social security contribution paid to tax authorities
- employees pension paid to pension scheme
what are the sections involved with a wages control account (WCA)
- wages control account
- wages expense
- tax authorities
- pensions
how does the WCA work
- like most other control accounts, ensures double entry made correctly
- gross wages in WCA initially then moved to relevant nominal ledger (eg tax authorities, pension and bank)
how do wage expenses work within the WCA
- expense account shows total cost to business of employing someone
- ie, gross salary + employers ss contribution + pension contribution if necessary
how are tax authorities accounted for in WCA
liability account shows amount of income tax and SS contribution owed to tax authorities
how are pensions accounted for in WCA
- liability account shows amount of pension that must be paid over to pension scheme
- includes employees and employers contributions
what is the double entry for:
gross pay
CREDIT = wages expense
DEBIT = wages controla account
what is the double entry for:
net pay to employees
DEBIT = wages control account
CREDIT = bank
