Create a manual check journal entry when an employee must be paid with a manual check, rather than through the standard computerized payroll system For ex-

ample, the management team decides to lay off several employees midway through the payroll reporting period, so the payroll staff creates a manual check, which is handed to the employees when they are informed of the layoff Each manual check is then entered into the computerized payroll system A journal entry is required to record the cash payment, while the manual check will be entered into the company s computerized payroll system, which will record the amount of all other payroll taxes and other deductions due A sample of the transaction is: Debit Salaries and wages expense Cash xxx xxx Credit

Once the manual check has been recorded in the payroll system, the computer should seamlessly include in its periodic payroll summary a transaction that accounts for all payroll taxes and other deductions, net of the entry already made The computer-generated transaction should look something like this: Debit Salaries and wages expense (net of entry already made) Cash Federal withholding taxes payable Social Security withholding taxes payable Medicare withholding taxes payable Federal unemployment taxes payable State withholding taxes payable State unemployment taxes payable Garnishments payable Union dues payable xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Credit

The information required for the initial journal entry comes from the remittance advice attached to the manual check The proper amount of payroll tax deductions used for the manual check may have been derived from an Internet-based wage calculation site, a phone-in automated calculation site maintained by a payroll supplier, from tax tables, or from a wage calculator in a computerized in-house payroll system

Create an outsourced payroll journal entry when the payroll processing function is being handled by an outside entity that returns to the company a listing of all funds

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expended and an itemization of all expense accounts This is a simpler entry than is required for in-house payroll systems, since the supplier generally undertakes to pay all government entities on behalf of the company, thereby eliminating all payroll-related liability accounts that the company would otherwise use A sample of the transaction is: Debit Salaries and wages expense Payroll taxes expense Cash Garnishments payable Union dues payable xxx xxx xxx xxx xxx Credit

Note that all payroll taxes are compressed into a single expense account One can split these expenses into a larger number of expense accounts, but the increase in reporting information is usually not worth the effort of maintaining additional expense accounts Also note that some nontax deductions are still paid out by the company, such as garnishments and union dues, so they are still listed as credits The information required for this entry is obtained from payroll reports issued by the payroll supplier Since the exact format of these reports varies by supplier, it is impossible to specify exactly where the information will be derived from However, if a supplier s reports are unclear, one can generally pay the supplier to construct a custom report that itemizes exactly what expenses and liabilities have been generated as a result of a payroll transaction

Create a salaries and wages accrual entry when employees have worked some hours at the end of the reporting period for which they have not yet been paid If a company pays on a weekly or biweekly basis, then this entry will probably be required for both the salaried and hourly employees If it pays bimonthly or monthly, then the entry is probably only needed for hourly employees, since salaried personnel will have been paid through the last day of the reporting period For example, if a company pays its employees once a month, based on time sheets completed through the preceding weekend, then it must accrue for unpaid wages for any hourly personnel who worked any days between the end of the last time reporting period and the end of the month A possible calculation under this assumption is shown in Exhibit 131, where the pay rates of all hourly personnel are listed as well as the number of unpaid working days in the month The spreadsheet automatically uses this initial information to calculate the wage and payroll tax accrual, even listing the account numbers to which the expenses should be charged