Course Code: ACC 102

Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Lesson title: Accounting for Payroll – Part 2 Materials:

Objectives: Module #23
1. Explain the payroll process
References:
2. Explain internal control for payroll and payroll entries
Fundamentals of Financial
Accounting and Reporting by
Win Ballada
www.accountingtools.com

A. LESSON PREVIEW/REVIEW
1) Introduction (2 mins)

The accounting for payroll involves all aspects of calculating and paying compensation to employees,
including the payment of withholdings to third parties. The outcome of this process is documentation of
the expenses associated with all types of compensation, as well as timely payments to employees.

B. MAIN LESSON
1) Activity 1: Pre-Printed Content Notes (13 mins)

ACCOUNTING FOR PAYROLL

PAYROLL PROCESS FLOW

Step 1. Set Up New Employees

Have new employees fill out payroll-specific information as part of the hiring process, such as
the W-4 form and medical insurance forms that may require payroll deductions. Set aside copies of this
information in order to include it in the next payroll.

Step 2. Collect Timecard Information

Salaried employees require no change in wages paid for each payroll, but you must collect and
summarize information about the hours worked by non-exempt employees. This may involve having
employees scan a badge through a computerized time clock.

Step 3. Verify Timecard Information

Summarize the payroll information just collected and have supervisors verify that employees
have correctly recorded their time.

Step 4. Summarize Wages Due

This document is the property of PHINMA EDUCATION

 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Multiply the number of hours worked by the pay rate for each employee, also factoring in any
overtime or shift differentials.

Step 5. Enter Employee Changes

Employees may ask to have changes made to their paychecks, usually to the taxes or pension
amounts withheld. You may need to record much of this prior to calculating taxes, since it impacts the
amount of wages to which taxes are applied.

Step 6. Calculate Taxes

Use tax tables to determine the amount of taxes to be withheld from employee gross pay.

Step 7. Calculate Wage Deductions

There may be a number of additional deductions to take away from employee net income,
including deductions for medical insurance, life insurance, garnishments, and union dues. You must
also track the goal amounts for these deductions, so that you stop deducting once the goal totals are
reached.

Step 8. Deduct Manual Payments

If manual payments have already been made to employees, such as advances, then deduct
these amounts from the remaining net pay.

Step 9. Create a Payroll Register

Summarize the wage and deduction information for each employee in a payroll register, which
you can then summarize to also create a journal entry to record the payroll. This document is
automatically created by all payroll software packages.

Step 10. Print Paychecks

Print employee paychecks using the information in the payroll register. You normally itemize
gross pay, deductions, and net pay in a remittance advice that accompanies the paycheck.

Step 11. Pay by Direct Deposit

Notify your direct deposit processor of the amount of any direct deposit payments, and issue
remittance advices to employees for these payments.

Step 12. Issue Paychecks

Have a paymaster issue paycheck to employees, requiring employee identification if there are
many employees.

Step 13. Deposit Withheld Taxes

Deposit all withheld payroll taxes and employer-matched taxes at a bank that is authorized to
handle these transactions.

This document is the property of PHINMA EDUCATION

 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

SAMPLE PAYROLL COMPUTATION

Illustration #1: Private Employee

Monthly Income (Basic Pay) 20,000.00

Salary Deductions:
HDMF Fee 100.00 20,000 * 2% = P400. Maximum
employee contribution = P100
PhilHealth 400.00 (20,000 * 4%)/2 = P400
SSS 900.00 Refer to the SSS Contribution Table in
Module # 22
Total Contributions 1,400.00
Withholding Tax 0 Tax Exempted
Total Deductions 1,400.00
Net Pay 18,600.00

SAMPLE PAYROLL ENTRIES

2018
Oct. 31 Salaries XX
SSS and EC Contributions Payable XX
Phil Health Contribution Payable XX
Pag-IBIG Contributions Payable XX
Withholding Taxes Payable XX
Salaries Payable XX
To record payroll for the period

31 Salaries Payable XX
Cash in Bank XX
To record payment of salaries

31 SSS and EC Contributions Expenses XX

PhilHealth Contributions Expenses XX
Pag-IBIG Contributions Expenses XX
SSS and EC Contributions Payable XX
PhilHealth Contributions Payable XX
Pag-IBIG Contributions Payable XX
To record employer’s payroll expenses

This document is the property of PHINMA EDUCATION

 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

Employer’s Journal Entries for Illustration #1

Salaries Expense 20,000

SSS and EC Contributions Payable 900
Phil Health Contribution Payable 400
Pag-IBIG Contributions Payable 100
Withholding Taxes Payable -
Salaries Payable 18,600
To record payroll for the period

Salaries Payable 18,600

Cash in Bank 18,600
To record payment of salaries

SSS and EC Contributions Expenses 1,730

PhilHealth Contributions Expenses 400
Pag-IBIG Contributions Expenses 100
SSS and EC Contributions Payable 1,730
PhilHealth Contributions Payable 400
Pag-IBIG Contributions Payable 100
To record employer’s payroll expenses

INTERNAL CONTROL OVER PAYROLL

Think of it!
● What if a person would do the function of personnel and payroll preparation? Then, that person
can easily inflate his wage rate or those of his cohorts with the effect of increasing their paychecks.
● What if an individual maintained personnel records and distributed paycheck? Then, he would
destroy the employee’s termination documents and retain subsequent paycheck for his benefits.

With these possible irregularities, the company must establish the following controls to make sure
that payroll disbursements are made only to legitimate employees and for correct amounts:

✔ Segregation of duties – the responsibilities for personnel records maintenance, payroll

preparation, accounting and paycheck distribution should be separate.
✔ Establishment of criteria for hiring employees - to prevent unqualified employees.
✔ Maintenance and verification of updated personnel records
✔ Proper authorization for compensation rates and payroll deductions - should be made only
in accordance with authorization from management
✔ Access Restriction - there should be a restricted access to personnel and payroll records, forms
and other documents to authorized personnel only to prevent misappropriation of cash and
unauthorized labor payments

This document is the property of PHINMA EDUCATION

 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

2) Activity 2: Skill-building Activities (18 mins + 2 mins checking)

Direction: Compute for the NET PAY.

Monthly Income (Basic Pay) 22,000.00

Salary Deductions:
HDMF Fee
PhilHealth
SSS
Total Contributions
Withholding Tax
Total Deductions
Net Pay

3) Activity 3: Check for Understanding (5 mins)

Direction: True or False

__________1. There should be no restricted access to personnel and payroll records, forms and other
documents.
__________2. The responsibilities for personnel records maintenance, payroll preparation, accounting
and paycheck distribution should be separate.
__________3. The HDMF Fee deductible to employees is always P100.
__________4. Accountants are the one responsible for the preparation of pay slips and pay checks.

A. LESSON WRAP-UP
1) Activity 4: Thinking about Learning (5 mins)
Congratulations for finishing this module! Shade the number of this module that you have finished.

This document is the property of PHINMA EDUCATION

 Course Code: ACC 102
Module #23

Name: _____________________________________ Class number: _________________

Section: _________ Schedule: _________________ Date: ________________________

b) Think about your learning by filling up your “My Learning Tracker” below. Write your learning targets,
your scores, and learning experience for this session and deliberately plan for our next learning
session.

Date Learning Target/Topic Scores Action Plan

What module# did you do? What What contributed to the quality of your performance today?
What’s the date What were your scores
were the learning targets? What What will you do next session to maintain your performance or
today? in the activities?
activities did you do? improve it?

FAQ

1. Is the employee contribution for government mandated benefits taxable?

- The portion of salary contributed by the employee in the premium contributions to GSIS, SSS,
PhilHealth, Pag-ibig and union dues is exempt from income tax. Under RMC No. 21-2011, the exclusion
pertains only to the mandatory or compulsory monthly contributions. Voluntary contributions to Pag-ibig,
GSIS or SSS in excess of the mandatory monthly contribution are taxable. Note that Pag-ibig is now called
the Home Development Mutual Fund (HDMF). (Banggawan, Rex B., Income Taxation, 2019)

This document is the property of PHINMA EDUCATION