Question

Cowboy Company's sales employees earn a total of $41,000 per month and are paid on the last working day of the month. Each employee’s wages are subject to FICA Social Security taxes of 6.2% and Medicare taxes of 1.45% on all wages. Withholding for each employee also includes federal income tax of 14% and monthly medical insurance premiums of $2,200 for the employees. Prepare the general journal entry to accrue the monthly sales salaries expense at January 31.

Answer 1

The accrual of salary Expenses involves the debit to the expenses Accounts and credit to the deductions payable and amount payable as net salary. Here the expenses being a nominal Account is debited as debit all expenses and losses, and deductions and payable will be credited as they are liabilities.

Social security taxes @6.2% = Gross salary × Rate

Social security tax = $ 41000 × 6.2% = $2542

Medicare taxes = Gross salary × 1.45 % = $ 41,000 × 1.45%

Medicare taxes = 594.50

Federal income tax = 41000 × 14% = $ 5740

The journal entry will be as follows :

Date	Accounts	Debit	Credit
31st Jan	Sales salary Expenses	41,000
	Social security tax payable		2542
	Medicare taxes payable		594.50
	Federal income tax payable		5740
	Insurance payable		2200
	Net salary payable		29923.50
	( To provide salary Expenses provision made)

Here if round off is used then Medicare tax will change to $ 595 and Net salary Payable to $ 29923.

Here for better understanding the payment entry is also given , when payment is made salary Payable is debited and cash is credited.

Date	Accounts	Debit	Credit
31st Dec	Net salary Payable	29923.50
	Cash		29923.50
	( Payment made )