Accruals and Reversals Balancing and Reconciliations Financial Statements & Audits Accounting Principles FASB vs. GASB GAAP Business Entity Concept Continuing Concern Concept
Time Period Concept Cost Principle Objectivity Principle Matching Principle Realization Principle Consistency Principle
Account Classifications Double Entry Accounting *always need a debit and a credit Equations: ACRONYMS ALE: Assets Liabilities = Equity REN: Revenue Expenses = Net Income NICE: Net Income Income Distributed + Contributed Capital = Equity [Contributed Capital + Net Income Income Distributed = Equity] Account Classifications
Asset Accounts Current Tangible or Property, Plant and Equipment Intangible or Deferred Account Classifications Liability Accounts Current Wages Taxes payable
Withheld Contributions to Benefit Plans Accounts Long Payable Term Notes Payable Account Classifications Equity
Contributed Retained Net Capital Earnings Income Revenue Amounts received for goods & services sold Expense Cost of goods and services consumed Account Balances Type of Account
Increase Decrease Contributed Capital Credit Decrease Increase Income Distributed Debit Increase Decrease T Accounts Payroll Checking
Debits Wages Payable Credits Debits $100.00 $100.00 Credits Chart of Accounts Makes distinctions between Assets, Liabilities, Expenses, and Revenues Makes distinctions between types of Assets, Liabilities, Expenses, and Revenues Uses cost centers or department codes
Types of Journal Entries Compound Entries General Ledger Subsidiary Ledger Accounts Payable Accounts Receivable
PPE (Fixed Assets) Double Entry Cash Journal Entry A wage payment of $100 would appear in a journal entry as follows: Debit Salary Expense Cash Credit $100 $100 Compound Entry Cash Journal Entry A payroll check was issued and recorded to the general ledger. Gross wages were $500. Taxes were withheld as follows: $75 for FIT, $35 for Soc Sec,
$7.25 for Medicare. Debit Credit $500 Salary Expense Federal taxes withheld $75.00 Social security taxes withheld $21.00 Medicare taxes withheld $7.25 Cash $396.75 Accrual Transactions Simple Journal Entry Record Wages of $6340 due to employee but not yet paid Debit
Wages Expense Wages Payable Credit $6340 $6340 Accrual Transactions Compound Journal Entry Salary of $6340 and Taxes of $485 Accrued, but not yet paid Debit Credit Wages Expense $6340 Payroll Tax Expense 485 Wages Payable $6340 Payroll Taxes Payable 485
Accounting Periods Monthly, Quarterly or Yearly Fiscal Year vs. Calendar Year Employment Tax Returns / Employee or Payee Information Statements Accrual & Reversing Entries Accruals at end of accounting period Reversal
of Accruals Reversal of Errors Accrual Journal Entries An accrual entry of $1000 was made in 2013 for a bonus to be paid in Jan. 2014. The bonus was paid in 2014 and Soc Sec & Medicare taxes were paid by the employer of $76.50. Federal, SS & MC taxes were withheld from the check of $326.50. What is the journal entry to record the accrual in 2013 and what is the entry to record the payment of the bonus in 2014? Debit Wages Expense PR Taxes Expense Wages Payable PR Taxes Payable Debit
Increase to Liability Credit Decrease to Assets Credit Decrease to Revenue
Debit Increase to Capital Credit Decrease to Expenses Credit Increase to Assets
Debit Balancing and Reconciliation Periodic Balancing What? Check against the payroll register
Verify checks issued by A/P Verify the end of the month balance When? Every payroll period Before filing tax returns Before sending out W-2s or 1099s Bank Accounts dual control Financial Statements
Balance Sheet Income Statement Statement of Cash Flows Trial Balance Statement of Retained Earnings
Notes to Financial Statements Audited Financial Statements Budgets and Variances Budget vs. Actual format Variances Favorable Variance Unfavorable Variance
Budgets and Variances Quiz Salary expense for the month of January was budgeted at $500. The actual expense incurred was $300. Is the variance favorable or unfavorable? Answer: Favorable by $200 Questions ? Overview Internal Controls Sarbanes Oxley Act
Check Fraud Check 21 Accounting Interfaces with Payroll Terminology Internal Controls Blank Checks Computer System Edits Internal Auditor
Negative Pay deductions Payroll Bank Account Payroll Distribution Phantom Employees Rotation of job duties Segregation of job duties Time Reporting Sarbanes-Oxley Act Requires public companies to have a framework for identifying, documenting, and
evaluating their internal controls over financial reporting. Provides a logical way to analyze a companys control system. Prohibits a public accounting firm from providing both external auditing and most non-auditing services to the same client and requires audit partners to rotate every 5 years. Check Fraud
Group 1 security features Group 2 security features Group 3 security features Check 21 Substitute checks used in clearing process Impact on payroll Questions ?
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