Question

1. Why are deductions from employees’ earnings classified as liabilities for the employer?

2. What are the principal reasons for using a special payroll checking account?

Answer 1

Answer:

1. The deductions from employee's earning is classified as liability for the employer because these are the amounts which are deducted from employees earnings and has to be paid to government.These are like provident fund & Employees state insurance deductions.These may be a periodic payment to government.

2. The principle reason for a business to have a separate special payroll checking account is for internal payroll control and management. “ Small businesses that employ people other than the owner or partners are required by the IRS to keep detailed payroll records.” If a business only has one account that includes payroll, expenses and income, it is much harder for management to keep track of how much money the company has.   By keeping payroll accounts separate from operating and expense accounts a manager can see very easily how much the business has paid out to employees for payroll weekly, monthly and yearly. Employees are usually very sensitive when it comes to their pay, so a special account also helps a business to make sure the money is there to make timely and accurate payments to employees. (A business might overdraw an expense account, but by funding a payroll account separate, employees do not have to worry about their paycheck bouncing.) Another advantage of a separate payroll account is the ability for a manager to easily find errors, stolen checks and possible employee misuse of the account.