Focus: Gross vs. net pay, deductions, taxes, timesheet review.
Key Responsibility: Maintain payroll records and support accurate payroll processing.
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Week 8 introduces the fundamentals of payroll accounting, from timesheets and gross pay to tax withholdings, deductions, and final net pay. Payroll is highly regulated, and bookkeepers play a key role in maintaining accurate payroll records, reviewing timesheets, and supporting correct payroll processing and posting.
By the end of this week, students will be able to:
The payroll cycle typically includes employee onboarding, timekeeping, payroll calculation, review and approval, payment to employees, remittance of taxes, and recording of payroll in the accounting system.
Bookkeeper responsibilities may include:
Salaried gross pay is based on annual salary divided by the number of pay periods (weekly, biweekly, semimonthly, etc.).
An employee earns 20 per hour and works 45 hours in a week:
Students review the main types of employee payroll taxes:
Social Security and Medicare together are referred to as FICA. These amounts are withheld from employee gross pay and recorded as liabilities until remitted to the government.
Common voluntary deductions include:
Some deductions reduce taxable wages (pre-tax), while others are taken after taxes (post-tax). Students learn to identify which deductions affect taxable wages and which only affect net pay.
Net pay is the amount the employee actually receives after all taxes and deductions are withheld from gross pay.
Net pay = Gross pay – employee taxes – voluntary deductions
Students examine sample paystubs showing:
Employers also incur payroll tax expense in addition to amounts withheld from employees’ paychecks. While these are often calculated by payroll software or providers, bookkeepers must understand them conceptually for accounting and reconciliation.
Common employer payroll taxes:
Before payroll is processed, timesheets should be checked for accuracy and authorization. Students practice scanning timesheets for:
Inaccurate timesheets can lead to employee underpayment or overpayment, compliance problems, and costly corrections.
Example (simplified):
Assume one employee with:
Wages Expense ............................. Dr 1,000
FICA Taxes Payable .......................... 62
Medicare Taxes Payable ...................... 14.50
Federal Income Tax Payable .................. 120
Health Insurance Payable ..................... 50
Cash (Net Pay) .............................. 700
Assume employer payroll taxes total 85 (FICA, Medicare, FUTA/SUTA).
Payroll Tax Expense ........................ Dr 85
FICA Taxes Payable .......................... 62
Medicare Taxes Payable ...................... 14.50
FUTA/SUTA Payable ............................ 8.50
Students learn that payroll creates multiple liability accounts: one for each type of tax or deduction, plus cash for net pay. Payroll expense is not the same as the amount of the net paycheck.
Payroll records must be maintained to satisfy both accounting and legal requirements. While specific rules vary, students are introduced to general guidelines such as:
Employers must also follow laws regarding minimum wage, overtime, final paychecks, and rest/meal breaks (state-specific). Bookkeepers support compliance by keeping accurate records and following established procedures.
Students review sample timesheets to identify discrepancies, missing approvals, and unapproved overtime, and prepare a brief list of corrections or questions.
Using provided scenarios, students compute gross pay for hourly and salaried employees, including overtime and PTO.
Students analyze mock paystubs, identify pre-tax vs post-tax deductions, calculate taxable wages, and reconcile gross pay to net pay.
Students create simplified payroll journal entries from mini payroll registers, recording wages expense, tax payables, and net pay.
Why is accurate payroll processing essential for both employee trust and legal compliance? What could happen if payroll is processed incorrectly or late?
Week 8 gives students a practical foundation in payroll fundamentals. By understanding gross vs net pay, taxes, deductions, timesheet review, and basic journal entries, students are better prepared to support accurate payroll processing and protect both employees and the organization.
In future weeks, payroll concepts can be extended to more advanced topics such as payroll accruals, multi-state payroll, and complex benefits.