Question

The purpose of this discussion is to consider and determine the effects of different withholdings, expenses, and liabilities as they relate to the journalizing and reporting of payroll associated items. Your discussion question response must include a minimum of two paragraphs in length.

When considering the different withholdings and liabilities associated with the payroll function, which obligations do you find create an additional expense for the company vs. those which are funded through withholdings from employee earnings? Are there any differences in how we record for items funded through withholdings from employee pay vs those funded by the employer?

Answer 1

Salary is a payment to employees for his services in the organisation. The amount of compensation which is payable for his services is Gross Salary. But the entire amount is not paid to employee, certain sums are deducted from his gross salary and the remaining amount is only paid to him. That payment is called Net salary.

The amount of deductions are payroll withholdings. This include FICA (Federal Insurance Contribution Act) deduction or Social Security & Medicare taxes, Federal income tax withholding, state income tax withholding.

These are deducted by employer from employees salary and paid to government regularly. These are not company's expenses.

Their Journal entry will be

Salary Expense a/c XXXX

To Social Security tax payable XXX

To Medicare tax payable XXX

To Federal Income tax withheld XX

To State Income tax Withheld XX

To Salary payable a/c XXX

Along with these deduction from Salary, employer also matches the payment of employees for social security tax and Medicare tax. They also have to make a payment for Federal Unemployment Taxes and State Unemployment Taxes (FUTA & SUTA). These employers part of Contribution can be claimed by him as expense

Journal entry

Social security tax expense a/c XXX

Medicare tax expense a/c XXX

Federal Unemployment Tax a/c XXX

State Unemployment tax a/c XXX

To Cash a/c XXXX

(Employers Contribution of social security taxes and Unemployment taxes are recorded)

Note : Alternatively, instead of crediting cash a/c we may first credit their respective payable accounts and pay from that account.