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Recording the Payroll

The payroll register is used to summarize the payroll data for each pay period. The register is a source document for journalizing the payroll entry. The partial payroll for James Courier Service given below will be used as an aid in journalizing James Courier Service February 15 payroll. (RPP and Union Dues will not be included here but will be added to the self-testing question to show you how the entries would be handled.)Error! Objects cannot be created from editing field codes.

Note: Some textbooks make use of a cash payments journal or a synoptic journal to record payroll entries. However, we will use a general journal when doing our payroll entries.

Using the Payroll Register,the journal entry required to record the payroll would appear in the General Journal as shown below.

General Journal Page DATE20__ Account Title

Post.Ref. DEBIT CREDIT

Feb. 15 Salary Expense 6113 4 814.38

Employees' Income Tax Payable 2103 388.40

Canada Pension Plan Payable 2105 67.69

Employment Insurance Payable 2107 113.15

Health Care Premium Payable 2108 210.00

Hospital Insurance Premium Payable 2109 56.95

Canada Savings Bonds Payable 2110 20.00

United Way Donations Payable 2111 8.00

Cash 3 950.19

Ch 128 M 31

Payroll Remittances are payments to employees and the federal government resulting from journalizing a payroll.

3 00 9 2 44 3 9 1 562 3 95 1 9 4 55

B 2 0 00 8 6 4 19 3 9 5 0 19Un. 8 00

Notice that Salaries Expense is debited for $4 814.38, the total of the earnings column. This amount represents the total amount of salaries expense to the business for the period. Employees' Income Tax, Canada Pension Plan, Employment Insurance, and all the other different types of withholdings are liabilities of the business and will be paid on the employee's behalf when they come due.

The credit to Cash of $3 950.19 represents the actual amount of cash that will be paid to the employees once they cash their cheques. We sometimes refer to it as the Net Pay of the employees. Note that the cheque number and memorandum number are given in the Explanation column.

Total Earnings minus the Deductions equals the Net Pay

In actual practice employers sometimes have the bank take the net pay out of the company's cash account and put it into the payroll account. That is the reason why cash was credited for $3 950.19 above.

A pay statement is an employee's statement of earnings and deductions for a pay period.

Once all the employees cash their cheques, the Payroll Account would be reduced to zero and would not be used again until the next pay period. Most of the accounts have balances left from the January payroll. Once the entry to record the payroll has been posted, the ledger accounts would appear as follows:

Account Employees' Income Tax Payable Account No. 2103

DATE20__ Item

PostRef. Debit Credit

Balance

Jan. 31 Balance _ 802.63

Feb. 15 GJ5 388.40 1 191.03

Account Canada Pension Plan Payable Account No. 2105

DATE20__ Item


Balance


Feb. 15 GJ5 67.69 348.61

Account Employment Insurance Payable Account No. 2107DATE20__ Item


Balance

Jan. 31 Balance 572.19

Feb. 15 GJ5 113.15 685.34

Account Health Care Premiums Payable Account No. 2108DATE20__ Item


Balance


Feb. 15 GJ5 210.00 630.00

Account Hospital Insurance Premiums Payable Account No. 2109DATE20__ Item


Balance


Feb. 15 GJ5 56.95 171.95

Account Canada Savings Bonds Payable Account No. 2110DATE20__ Item


Balance


Feb. 15 GJ5 20.00 60.00

Account United Way Donations Payable Account No. 2111DATE20__ Item


Balance


Feb. 15 GJ5 8.00 16.00

Account Salary Expense Account No. 6113

DATE20__ Item


Balance

Feb. 15 GJ5 4 814.38 4 814.38

Recording an Employer's Taxes

Employers as well as employees are required by law to contribute to the Canada Pension Plan Fund and the Employment Insurance Fund. The payroll entry recorded only the liability for the employee's share of these taxes. Therefore, a second journal entry is necessary to record the employer's share of taxes owed to the Canada Pension Plan and Employment Insurance Funds.

Each employer is required to contribute an amount equal to the contributions deducted from their employees for the Canada Pension Plan. Therefore, if employees contributed $500.00, the employer must have a matching contribution of $500.00.

However, it is a different story when calculating the contribution for employment insurance. The employer must pay 1.4 times the total amount withheld from employees.

These entries are considered business expenses and must be journalized and posted. The entries required to journalize the employer's share of Canada Pension Plan and Employment Insurance are given in the General Journal below.



Feb. 15 Canada Pension Plan Expense 6110 67.69 Canada Pension Plan Payable 2105 67.69M 42

15 Employment Insurance Expense 6111 158.41 Employment Insurance Payable 2107 158.41M 42

If a detailed breakdown of payroll expenses is not required, the expenses for Canada Pension Plan and Employment Insurance may be combined and recorded as payroll taxes as shown in the entry below.

General Journal Page

DATE20__

Account TitlePost.Ref. DEBIT CREDIT

Feb. 15 Payroll Taxes Expense 226.10

Canada Pension Plan Payable 67.69

Employment Insurance Payable 158.41

To record payroll taxes resulting from payroll.

However, most of the time the detailed entries given in the first example seem to prevail.

Posting the Employer's Payroll Taxes Entry

After the entries for the employer's payroll taxes are posted from the first journal entry on the previous page, the four accounts involved appear as shown below. Refer to the previous postings in the ledger accounts for the February 15 entries.


DATE20__ Item


Balance


Feb. 15 Employee Share GJ5 67.69 348.61

Feb. 15 Employer Share GJ5 67.69 416.30

Account Employment Insurance Account No. 2107

DATE20__ Item


Balance


Feb. 15 Employee Share GJ5 113.15 685.34

Feb. 15 Employer Share GJ5 158.41 843.75

Account Canada Pension Plan Expense Account No. 6110

DATE20__ Item


Balance

Feb. 15 GJ5 67.69 67.69

Account Employment Insurance Account No. 6111DATE20__ Item


Balance

Feb. 15 GJ5 158.41 158.41

The debit of $67.69 to Canada Pension Plan Expense and $158.41 to Employment Insurance Expense represent the employer's share of the payroll tax that must be paid to the Canada Pension Plan and the Employment Insurance Fund. These are expenses of the business and are debited every pay period during the year.

You will notice that Canada Pension Plan Payable and Employment Insurance Payable accounts each have two entries entered on February 15. The first entry in Canada Pension Plan Payable for $67.69 represents the employee's share of payroll tax that was withheld from the employee. Then entry was posted to the account from the General Journal when the payroll was recorded. The second amount of $67.69 that was posted from the General Journal represents the employer's contribution to Canada Pension Plan. As mentioned before, the employer matches the employee's contribution.

The first credit of $113.15 entered in Employment Insurance Payable from the General Journal represents the employee's share or contribution to Employment Insurance Fund. The second figure of $158.41 is the employer's share of Employment Insurance; it is not a matching amount but is found by multiplying the employee's share by 1.4. Once these first two entries are posted, the liabilities remain in the accounts and are paid when they eventually come due.

Paying Withholding and Payroll Taxes

The employees' and employer's Canada Pension Plan, Employment Insurance contributions and employees Income Tax withheld must be remitted by the 15th day of the month in which remuneration was paid to employees. Remitting late, or failing to remit, amounts to a penalty of 10% of the amount that should have been deducted, plus interest at a prescribed rate.

The usual procedure to remit payment would be to make out a cheque payable to the Receiver General of Canada. Along with the cheque would be a completed form called a PD7AR - Tax Deduction - Canada Pension Plan - Employment Insurance Remittance Return as shown on the next page.

The employer usually takes the form and the cheque to his local bank for payment. The bank will tear off the top upper half of the form and see that the payment is remitted to the Receiver General on the employer's behalf. The bottom half of the form is returned to the employer for his/her own records.

If for some reason an employer can't remit payment through his/her bank, the upper part of the form is completed and mailed with a certified cheque or money order to the closest Taxation Data Centre. The Data Centre will process the remittance and return a receipt of payment along with another PD7AR form which will be used for the next month's remittance.

Insert as an example a Remittance Form (PD7AR)

The journal entry necessary to record payment of the government taxes is shown here as it would appear in the General Journal. You will note that the entry includes the total of all the amounts owed by the employer and the employees. As you can see from the ledger accounts following, the employer is paying all payroll taxes due from the last January payroll. The amounts left in Employees' Income Tax Payable, Canada Pension Plan Payable and Employment Insurance Payable are amounts withheld from the February 15 payroll.



Feb. 15 Employees' Income Tax Payable 2103 802.63

Canada Pension Plan Payable 2105 280.92

Employment Insurance Payable 2107 572.19

Cash 1 655.74

Ch 223 M 43

Here are the liability accounts after posting has occurred. Refer back to the first ledger accounts in this lesson for amounts owing from last month's payroll.

Account Employees' Income Tax Payable Account No. 2103

DATE20__ Item


Balance

Jan. 31 Balance GJ5 802.63

Feb. 15 GJ5 388.40 1 191.00

15 GJ5 802.63 388.40


DATE20__ Item


Balance


Feb. 15 GJ5 67.69 348.61

15 GJ5 67.69 416.30

15 GJ5 280.92 135.38

Account Employment Insurance Payable Account No. 2107

DATE20__ Item


Balance


Feb. 15 GJ5 113.15 685.34

15 GJ5 158.41 843.75

15 GJ5 572.19 271.56

Paying Other Deductions

The remainder of the amounts that have been withheld from employees would be paid. In each case, a journal entry debiting the liability account and crediting Cash would be required until all the liabilities had been paid. You will note from the General Journal given that each payment is done with a separate cheque, because the creditors are located in different places. When remitting government taxes, Canada Pension Plan, Employment Insurance, and Income Tax can be all made out as one cheque to the Receiver General of Canada.

Statement of Remuneration Paid

Another report every employer is required to file with the district Taxation Office is a T4 Return - Statement of Remuneration Paid. This form is shown below.

Insert a T4 Return – Statement of Remuneration Form

This form must be sent by the employer to the employees and the government by the last day of February. This statement shows the total year's earnings as well as all the deductions pertaining to taxable income.

In addition to forwarding a T4 Return to each employee, the employer is expected to summarize all T4 Returns on a T4A Summary form and send it to the Taxation Office.

Remember These Important Points

• The payroll register is used to summarize the payroll data for each pay period.

• The payroll register is a source document for journalizing the payroll entry.

• The journal entry to record the payroll would be to debit Salaries Expense which is the total of the earnings column. This represents the total amount of salaries expense to the business for the period. Employees' Income Tax, Canada Pension Plan, Employment Insurance, and all the other different types of withholdings are liabilities of the business and are credited. Cash is credited and represents the actual amount of cash that will be paid to the employees (net pay). These will be paid on the employee's behalf when they become due.

• The above entry recorded only the liability for the employee's share of the taxes. Therefore, a second entry is necessary to record the employer's share of taxes owed to the Canada Pension Plan and Employment Insurance Funds.

• Both the employee's and employer's share of the taxes are posted to the same ledger accounts.

• The employer matches the employee's contribution for Canada Pension.

• The employer's share of Employment Insurance is l.4 times the employees' share.

• The employees' and employer's Canada Pension Plan, Employment Insurance contributions, and Employees' Income

Tax withheld must be remitted by the 15th day of the month in which remuneration was paid to employees.

• To remit payment, a cheque would be made payable to the Receiver General of Canada, along with a completed form called a PD7AR.

• The journal entry necessary to record payment of the government taxes includes the total of all the amounts owed by the employer and the employees.

• The remainder of the amounts that had been withheld from employees would be paid by debiting the liability account and crediting Cash until all the liabilities had been finally paid.

• Each of the remaining payments is made with a separate cheque, because the creditors are located in different places.

• When remitting government taxes, Canada Pension Plan, Employment Insurance, and Income Tax can be all made out on one cheque to the Receiver General of Canada.

• Another report every employer is required to file with the district Taxation Office is a T4 Return - Statement of Remuneration Paid. This statement shows the total year's earnings as well as all the deductions pertaining to taxable income.

Do You Understand?

Payroll register - an accounting record summarizing the details of a pay period.

Payroll journal - the payroll register used as the book of original entry.

Payroll taxes expense - an account used to record the additional employer's expense resulting from the payroll.

Payroll remittances - payments to employees and the federal government resulting from journalizing a payroll.

Pay statement - an employee's statement of earnings and deductions for a pay period.

Conclusion

Each business will have a system for handling payroll accounting. The same principles apply to all systems; they are basically the same.

The system must accomplish six objectives. It must:

• provide a method for keeping track of employees' hours of work.

• have a means of calculating payroll deductions and employees' pay.

• allow for the recording of payroll information.

• pay the employees and deductions.

• record payroll taxes for Canada Pension Plan and Employment Insurance.

• make regular payments to the Receiver General for taxes, Canada Pension Plan and Employment Insurance withheld from employees' paycheques.

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