session b3 - payrolltoday.ca - payroll ... -...
TRANSCRIPT
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Session B3 Payroll Accounting
Presented by:
Cheryl Ball, CPM, The Canadian Payroll
Association
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1
Payroll Accounting
Presented by: Cheryl Ball, CPM
Agenda
• Accounting is …
• Terms and Jargon
• The Accounting
Process
• Accounts for Payroll
• Chart of Accounts
• Specific Payroll
Accounts
• Accounting Tips
• Accounting Periods
• Single/Double-Entry
• Reconciliations
• Budgets
• Variances
• Payroll Audit
• Record Retention
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Enables
employers to meet
statutory obligations
Tracks
deductions and
remittances
Summarizes
and analyzes payroll
information recorded in the General
Ledger
Accounting …
Provides
operating costs
Reports
payroll information to
managers, government
bodies, auditors and shareholders
Accounting …
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The Accounting Process
• The Flow
Terms and Jargon
Salaries and wages paid
Withholding of statutory deductions
Employer taxes/levies
Company benefits expenses
Employee deductions
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• Double-Entry/Single-Entry
• “T” Accounts
• Journal/Journalize
• General Ledger
• Post/Posting
Terms and Jargon
• Account
• Journal Entry
• Adjusting Journal Entry
• Job Code/Cost Centre
• Balance
Terms and Jargon
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• Assets
• Liabilities
• Expenses
Accounts for Payroll
Chart of Accounts is …
• A list of accounts with titles and numbers to
be used in the ledger
Account Type Account Number
Assets 1000 - 1999
Equity 2000 - 2999
Liabilities 3000 - 3999
Revenue 4000 - 4999
Expenses 5000 - 5999
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Specific Payroll Accounts
• Assets
– cash
• (payroll chequing/clearing account)
Specific Payroll Accounts
• Liabilities
– salaries/wages payable
– benefit deductions
– EE statutory deductions withheld
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Specific Payroll Accounts
• Expenses
– salaries/wages expense
– benefit expenses
– ER statutory portions required
Accounting Tips
• Cash
– debits – increase (deposits)
– credits – decrease (cheques)
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Accounting Tips
• Traditional Balance
– expense – debits
– liabilities – credits
Accounting Tips
• Making a payment
– debit liability or debit expense
– credit cash
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Accounting Tips
DR CR DR CR
Gross pay X X
C/QPP contributions payable X X
EI premiums payable X X
QPIP premiums payable X X
Federal income tax payable X Employer share of group benefits X
Quebec income tax payable X X
Union dues payable X X
Benefits payable X X
Voluntary deductions X X Net pay X X
Net pay X DR CR
Payroll cash X X
X
X
X
X
X
X
Benefits payable (EE & ER)
C/QPP contriubtions payable (EE & ER)
EI premiums payable (EE & ER)
QPIP premiums payable (EE & ER)
Union dues payable
Remitting cheques to 3rd Parties
Pay Statement
QPIP premiums payable
C/QPP employer expense
EI employer expense
QPIP employer expense
EHT payable
Payroll cash
Paying Employees
Payroll Accounting
Employer Gr. benefits payable EHT payable
Employer portion & other expenses
EHT
C/QPP contriubtions payable
EI premiums payable
Accounting Tips
Debit or Credit…
• assets/expenses
– generally have a DEBIT Balance
• liabilities
– generally have a CREDIT balance
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– What an asset/expense account does:
– What a liability account does:
Accounting Tips
Debit Credit
Increases Decreases
Debit Credit
Decreases Increases
Accounting Equation
A = L + E
(assets) = (liabilities) + (equity)
DR = CR + CR
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Are: an established period of time covered by financial statements
accounting period of one year equaling the accounting year
fiscal year is 12 consecutive months (not always a calendar year)
Accounting Periods
Double-Entry Accounting
• All entries must consist of a debit and a
credit
• All entries must balance
• Use the “T” Account method
Debit Credit
"T" Account
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T-Accounts
Salaries Cash
DR CR DR CR
1,000 1,000
• Double-entry method of accounting
Record …What …When
• Use pay period end date for:
– gross payroll
– benefits
• Use pay date for:
– statutory deductions
– net payroll (cash)
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Recording Transactions
Journalizing
a financial transaction
components sub-journalsbatch
processing
Journal Entry #1
Journal Entry #1
Date: May 26, 20xx
Account Name Account No. Debit Credit
Warehouse wages 5000-602 574,532.00
Warehouse overtime 5000-603 12,685.34
Warehouse sick pay 5000-620 1,005.22
Warehouse vacation pay 5000-621 1,198.08
C/QPP contributions payable 2000-207 24,591.23
EI premiums payable 2000-208 11,964.29
Federal Income tax payable 2000-209 73,873.09
Union dues payable 2000-216 587.50
Medical/dental payable 2000-215 1,250.00
Payroll clearing (net pay) 2000-304 477,154.53
Total 589,420.64 589,420.64
To record wages expense for payroll of May 26, 20xx
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Journal Entry #2
Journal Entry #2
Date: May 26, 20xx
Account NameAccount No.
Debit Credit
Warehouse C/QPP - employer 5000-651 24,591.23
Warehouse EI - employer 5000-652 16,750.01
Group benefits - employer 5000-653 1,250.00
C/QPP contributions payable 2000-207 24,591.23
EI premiums payable 2000-208 16,750.01
Medical/dental payable 2000-215 1,250.00
Total 42,591.24 42,591.24
To record employer’s portion of CPP, EI and medical/dental expenses
Create Payments
• Payment of Statutory Deductions
– debit – C/QPP, EI, QPIP, income tax liabilities
accounts
– credit – cash
• Payment of Payroll
– debit – wages payable
– credit – cash
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Record Transactions
• Posting to the General Ledger
– transfers information from journal to the
accounts
• Trial Balance
– verifies that debits and credits are equal
Financial Statement contains…
• A Balance Sheet
– showing the financial position at a point in time
• considered permanent accounts
Assets = Liabilities + Equity
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Financial Statement contains…
• An Income Statement
– over a period of time
• considered temporary accounts
Income = Revenue - Expenses
Accruals
• Record estimated payroll expense in correct
period
– salaries, vacation, bonuses, sick leave payments
• Completed at the end of the period
• Accrual is a portion of regular payroll
– earnings to be accrued vary by company
– omission of accruals understates expenses and
provides misleading information
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Pay vs Accounting Period
Pay period Accounting #1 Period #1
(Usually Pay period
#2 monthly)
Pay period
#3 Accounting Period #2
Accruals
Represent reasonable
estimate
Amounts need to be
as precise as possible; however,
do not need to be exact
Usually based on pro-ration
or percentage
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Accruals
What
to
accrue?
Work week is 5 days
Accrual for April 15 - 30
Monday - Friday (no overtime)
120,000 divided by 10 = 12,000 per day
Accrual
12,000 X 12 = 144,000
April 30 Journal Entry
Debit Credit
Salaries Expense 144,000.00
Payroll Accrual Liability 144,000.00
Accrual Reversals
Reduce the amount for salaries, wages, vacation and/or benefits by:
the amount that was reported for a previous accounting period
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Accrual Reversals
• Reversed-at beginning of next period
• Actual will post in current month
– April 15 – 26 - post with May 3rd payroll
– April 29 – 30 - post with May 17th payroll
– May payroll accrual will only be 5 days
May 1 Journal Entry
Debit Credit
Payroll Accrual Liability 144,000.00
Salaries Expense 144,000.00
Vacation Accruals
Recorded as the vacation costs accrue each pay period
Reduce when an employee takes vacation or is paid vacation pay
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Sick Leave Accrual
• Depends on company policy
If employee can accumulate leave, the
employer incurs a liability
When employee uses leave, liability is
reduced by amount paid to the employee
Reconciliations
• Performed just after month-end
• Confirm all entries have been posted
• Verify expenses are booked accurately and
balances to payroll
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Reconciliations
• Payments are on schedule
– easier if payroll administrator understands
schedule
• Reconcile payroll liability accounts
– GL balance to payroll journals/registers
• Once identified - is difference valid?
Reconciliations
• Example: Federal Income Tax
– assume Threshold II Remitter
– liability incurred on Friday
• due on or before the following Wednesday
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Reconciliations
Sun Mon Tues Wed Thurs Fri Sat April
1 2 3 4 5
6 7 8 9 10 11 12 General Ledger balance 3/31 0.00
13 14 15 16 17 18 19
20 21 22 23 24 25 26 4/4 Liability (30,000.00)
27 28 29 30 4/9 Payment 30,000.00
4/18 Liability (30,000.00)
4/23 Payment 30,000.00
General Ledger balance 4/30 0.00
Support shows all payments made agree with balance
Reconciliations
Sun Mon Tues Wed Thurs Fri Sat May
1 2 3
4 5 6 7 8 9 10 General Ledger balance 4/30 0.00
11 12 13 14 15 16 17 5/2 Liability (30,000.00)
18 19 20 21 22 23 24 5/7 Payment 30,000.00
25 26 27 28 29 30 5/16 Liability 30,000.00
5/21 Payment (30,000.00)
5/30 Liability 30,000.00
General Ledger balance 5/31 30,000.00
$30,000.00 is due June 3 credit balance at the end of May is valid
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Reconciliations
• Avoid Errors in Posting
Ensure account numbers are correct
Post to correct side of the entry
Post all debits and credits
Ensure all debits and credits are equal
Reconciliations
• Finding Errors
Federal Tax payable Union dues payable Balance 36,000 Balance 13,092 Sept 2 37,000 Sept 2 3,300 Sept 10 36,000 Sept 16 3,370 Sept 15 Sept 16
13,092 37,940
Sept 30 Balance
3,290 23,052
Sept 25 37,000 Sept 30 38,100 Balance 62,948 Oct 10 76,040
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Payroll and Budgets
• What is a budget?
– A plan, in monetary terms, which an organization
uses:
• to set financial goals
• to measure financial performance against
predetermined expectations
• as a guideline in keeping a company on a charted
course
Payroll and Budgets
• What are the payroll implications?
– Payroll participates in developing budgets for:
• its departmental operating costs
• government related payroll taxes
• employee benefits (sick leave/vacation)
• employee benefit plans
• providing information for other departments
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Variances to Budget
• Possible Sources of Variances
– headcount
– shortage of FTE
– error in general ledger posting
– items not included in budgets
– more or less hours worked than budgeted
– different mix of grade levels of FTE
– change in planned salary increases
Payroll Audit
• Payroll department is subject to more audits
than any other area of a company’s activities
• Auditors:
– the company’s employees
– internal auditors
– external auditors
– government auditors
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Payroll Audit
• Performed independently
• Assessments of the financial and operating integrity
of the company’s records and activities
• Measures of the reliability of the company’s financial
results
• Safeguards of the company’s assets
• Tools to determine the efficiency and effectiveness
of operations
Payroll Audit
• Systems Review
– Auditors rely on internal controls. They will want
the employer to provide:
• description of payroll system (or flow chart)
• documentation of internal controls
• reconciliations/approvals
• description of audit trail
• written evidence of changes to employee status
• process time
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Payroll Audit
• Other Assistance
– Pulling of documents for auditor such as:
• TD1
• salary authorization
• hiring forms
• termination forms
• time cards
• paid cheques
• approved payroll input forms
• bank DR/CR memos
• payroll journals
Record Retention
Canada Revenue Agency (CRA)
Revenue Quebec (RQ)
Labour/Employment Standards
Pension records
Publications
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Questions
Thank you for participating!!