Session 11

Question 1

Payroll Accounting

Answer 1

• Wages generally amount to one of the largest expenses incurred by a business.
• Payroll accounting implies the recording of the:
• Employee’s payroll deductions
• Employer’s payroll deductions expense (or payroll taxes)
• Fringe benefits
• Cash Payment

Question 1

Gross Pay

Answer 1

• Total amount of salary, wages, commission, piecework, and bonus earned by the employee during a pay period.
• Amount before income taxes or any other deductions.
• Employer’s expense

Question 2

Net Pay

Answer 2

• Amount the employee keeps after taxes.

-Equal gross pay minus deductions.

Question 3

Payroll Deductions (employee)

Answer 3

• Amounts deducted from an employee’s pay, usually based on the amount of an employee’s gross pay.
• Amounts withheld from each employee’s gross pay are recorded as a liability until the deductions are paid to the government (or others depending on the deduction).
• Required deductions:
  *Employment Insurance (EI)
  *Québec Pension Plan (QPP)
  *Québec Parental Insurance Plan Premiums (QPIPP)
  *Employee’s income tax:
  Federal and Provincial
• Optional deductions:
  *Union dues
  *Medical and dental
  *Pension plans
  *Donations to charitable organizations

Question 4

Employment Insurance (2023)

Answer 4

Statutory contribution requirements for employees:

• Maximum insurable earnings: 61500$ per year.
• Premium rate : 1.27% of insured earnings
• Yearly maximum employee premiums: 781.05$
• The employer contributes 1.4x the employee’s contributions (maximum of 1093.47$)

Question 5

Quebec Pension Plan (QPP) (2023)

Answer 5

Maximum Pensionable Earnings 66,600$
- General Exemption 3,500$
= Eligible Earnings : 63,100$
Premium rate: 6.40%

Maximum employee contribution : 4,038.40$

• Maximum employer contribution : 4,038.40$

(employer contribution is equal to the employee contribution

Question 6

Quebec Parental Insurance Plan Premiums (QPIPP) (2023)

Answer 6

Maximum Insurable Earnings : $91,000.00
x Premium rate for employee: 0.494%

= Maximum employee contribution : 449.54$

(Premium rate for employer: 0.692% = 1.4 times the employees’ contributions)

Question 7

Employer Payroll Cost

Answer 7

Expenses related to salarie that the company must assume in terms of social security.

• Employment Insurance (EI)
• Quebec Pension Plan (QPP)
• Quebec parental insurance plan premiums (QPIPP)
• Health Services Fund (HSF)
• Contribution to the Workforce Skills Development and Recognition Fund
• Occupational Health and Safety Insurance Premium (CNESST)

Question 8

Employee vs Employer’s contributions to EI, QPP and QPIPP

Answer 8

-EI
(The employer contributes 1.4x the employee’s contributions - (1.4 : 1))

-QPP
(The employer matches employee contributions - (1 : 1))

-QPIPP
(Premium rate for the employer is 0.692%, 1.4x the employee’s premium rate - (1.4 : 1))

Question 9

Health Services Fund (HSF)

Answer 9

• The contribution rate is based on the total payroll for the year.
• Public-sector employers must pay a contribution of 4.26%, regardless of their total payroll.

Question 10

Employee (Fringe) benefits expense

Answer 10

The employer may pay for the other payroll related expenses such as:

• Life insurance
• Medical or dental insurance
• Disability insurance
• Pension plans
• Vacation pay (mandatory)

Question 11

Vacation Pay

Answer 11

Calculation of amounts to be paid:

of vacation weeks: 2 weeks
÷ # of work weeks: 50 weeks
= Vacation Pay: 4 %

Question 12

Payroll Entry to record Salaries Expense and employee withholdings

Answer 12

Salaries expenses(debit)
GST(credit)
QST
EI Payable
QPP Payable
QPIPP Payable
Salaries Payable(net pay)

Question 13

Payroll Entry to record the Employer’s payroll deductions

Answer 13

Employer’s payroll deductions (debit)
EI Payable(Credit)
QPP Payable
HSF Payable
QPIPP Payable

Question 14

Payroll Subcontractor

Answer 14

• When payroll services are subcontracted, deductions at source are remitted directly by the supplier (subcontractor).
• In other words, the company does not need to record the employee share portion of deductions at source. There is therefore no liability account linked to payroll processing in the company’s books (EI payable, QPP payable, etc.).
• The subcontractor is also in charge of remitting the employer’s payroll deduction expenses to the governments.

Here are the payroll entries when the employee payroll is subcontracted (as in the simulation)

1) Payment of wages and payroll deductions expenses:

Salaries expense(debit)
Employer’s payroll deductions expenses(debit)
Cash(credit)

2) Vacation pay:

Vacation pay expense(debit)
Estimated liability for the estimated cost of vacation pay(credit)

Question 15

Items that appear on the Bank Reconciliation

Answer 15

The bank side lists items recorded by a company in the general ledger, but not yet recorded by the bank:

• Timing differences:
  *Deposits in transit(outstanding deposits)
  *Outstanding cheques
• Bank errors

The book side contains items not yet recorded by the company in its accounting records, but recorded by the bank, including the following:

• Bank collections
• EFT receipt and payments
• Service charges
• Interest revenue on chequing account
• NSF Cheques
• Cost of printed cheques
• Book errors

Question 16

Treatment of NSF cheques

Answer 16

Accounts receivable(debit)
Cash(credit)