ACCOUNTANCY FORM 6 – PAYROLL ACCOUNTING/EMPLOYEES PAY

ACCOUNTING ENTRIES

Payroll Accounting involves accounting Principles and techniques covered previously;

In some organization payroll entries passed to the General ledger directly, in this case, the payroll summary act as a special Journal.

But, in most cases, payroll summary is not part of double entry, it only save as a working paper, for preparation of General Journal. Kibasila High School. Payroll summary for all departments will be recorded in general Journal basis/follows:

One transaction that needs recording is employer’s contribution to NSSF since it is 10% of each employee’s

Basic pay will be   Tshs. 125, 900

   Dr, NSSF Employers Contribution             125,900

   Cr, NSSF Payable                                           125,900

At the end of the month

   Dr; Salary payable                                   733,530

        CR; Cash   A/C                                    733,530

Being payment of salaries to employee’s

DR, NSSF payable                            251,800

     Cr, Cash   A/C                               251,800

Remittance to NSSF employee’s and employer contribution

DR, P.Y.E                                          136,570

     Cr, Cash                                        136,570

Mode’s of Payment of salaries

i)   Currency (notes & coins)

ii)   By cheques

iii)   Credit transfer to employees bank account.

Overtime Payments

Usually employees are required to work 8 hours a day, 40 hours a week or 176 hours a month.

If an employee works more than he mentioned hours about the entitled to overtime payment.

On a normal working day overtime is paid at one and half times the normal rate of pay.

On weekends or Holidays overtime is paid at twice the normal rate of pay.           

Formula for overtime Payments;-   (Basic pay x factor x hours of overtime)/(176 hrs)

Example 1

HGK Company employs four people, each of whom is married, whose monthly salaries are;

Determine the correct amount of P.A.Y.E and Net Pay for each employee

Additional Information;-

Income Exceeds Tshs 65,000 but not exceeds Tshs.85,000 is Tshs 9500 plus 5% of the Excess of Tshs 65,000

Income Exceeds Tshs 86,000 but not exceeds Tshs.100,000 is Tshs 10,500 plus 6% of the excess of Tshs.86,000

Income Exceeds Tshs 100,000 but not exceeds Tshs.120,000 is Tshs.11,500 plus 15% of the excess of Tshs.100,000.

Solutions

Payee for SADIKI and Net Pay

      = (85,000 – 65,000) x 5% + 9500

      =  1000 + 9500

      =  10,500                       

Net Pay = 85,000 – 10,500

                 = 74,500

ZUBERI

       PAYE = 240 + 10,500

                = 240 + 10,500

                = 10,740

    Net pay = 90,000 – 10740

                = 79,260

REHEMA

PAYE = (96,000 – 86,000) x 6% + 10,500

           = 600 + 10, 500

         = 11,100

Net pay = 96,000 – 11,100= 84,900            

MGAYA

             PAYE = (120,000 – 100,000) x 15% + 11,500

                     = 20,000 x 15% + 11,500

                     = 3,000 + 11,500

                     = 14,500

         Net Pay = 120,000 – 14,500

                     = 105,500

Example 2

In the following summary of data obtained from 1 MICU Company’s payroll records some amounts have been intentionally omitted.

Required

-Determine amounts omitted in (i) (iii), (iv), (Vii) and x

Workings

If 580,650 = 10%

Then x = 10%

x= 580650 x 10

x = 5,806,500

: Gross pay 5,806,500

Basic Pay = Gross pay – Overtime

= 5,806,500 – 504,000

Basic pay =6,310,500

PAYE Tax = Total deduction – Worker Association –(on Gross pay)

                   = 2,087,750 – 77,000 – 580 650

                   = 1,430,100

       PAYE Tax 1,430,100

Net pay = Gross pay – Total Deduction

                       = 5,806,500 – 2,087,750

                     = 3,718,750

(x) Gross pay and NSSF (Employer contribution = Salaries Expenses)

   5806 500 + 580,650 = 6,387,150

Salaries Expenses 6,387,150

    Sales salaries = Salaries Expenses – Office Salaries – Factory Wages

                             = 6,387,150 – 1,652,000 – 2,124,500

                             = 2,610,650

            EXERCISE

The following are details related to the coming of two Employees during the week ended 28/2/2001.

A 40 hours week is in operation and overtime is paid at time and quarter. If an employee’s piece work earnings fall below his earnings rate at the hourly rate, then the hourly rate then the hourly rate earning are paid. Both employees have the following deductions.

Pension Scheme – 2% of Gross pay.

NSSF – 10% of Gross Pay.

PAYE – 25% of all earning in excess of 150% per week your are required to calculate the Gross and Net wages of each employee showing clearly the amount of each deduction.