Business Management: Accrued Payroll and Journal Entries

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Business Management
1

Table of Contents
Assignment 1...................................................................................................................................1
Question (A)....................................................................................................................................3
Question (B).....................................................................................................................................4
Question (C).....................................................................................................................................5
I. Weekly Journal Entries.........................................................................................................5
II. Ledger Accounts...................................................................................................................6
References......................................................................................................................................10
2

Question (A)
As per the policy of the company it can be seen that gross payroll of $ 8000 per day is paid by
the company. Also the firm is working for 5 working days i.e. from Monday to Friday both
inclusive and the payment cycle for payroll is from Thursday to Wednesday and the payment for
such Payroll is made on following Friday. In the given case the payment till 24th of September
would have been made till 26th September but for the remaining period will be made in the next
month (Bragg, 2019). Thus the remaining payment of Payroll expense would have to be accrued
and entry for the same is to be passed on 30th September. Total Number of days for which salary
will be accrued is 4 days i.e. 25th, 26th, 29th, and 30th September. Following table shows the total
amount that has to be credited to accrued Payroll in respect of September Earnings:
Particulars Amount/Days
Gross payroll per day
$
8,000
Less: Withholding of PAYG
$
(2,400)
Net Payroll
$
5,600
Number of working days 5
Payroll period Thursday to Wednesday
Period for which payment is accrued at the end of September 25 Sept-30 Sept
Number of Days salary accrued 6 Days
3

Gross Amount credited to Accrued Payroll
$
48,000
Less: Withholding of PAYG
$
(14,400)
Net Accrued Payroll in September earnings
$
33,600
Thus from the above table it can be seen that the company will have to recognize $ 48000 as
gross expense for accrued payroll and on the gross amount the company will have to deduct
withholding tax of 30% thus remaining net accrual payroll in September earnings is $ 33600.
Thus total gross amount to be credited to Accrued payroll in respect of September earnings are $
48000 and net amount is $ 33600.
4

Question (B)
Accrued expense means any kind of expense which has been recognized in the books but
payment for the same has not been made yet. It depicts the future obligations of the company for
making payment of expenses which have already recognized in the expense due to prudence
concept but its payment has not yet been made. Payroll expense is another expense which could
be accrued in the company as the payment for the payroll becomes due in the same period but the
payment for the same is made in subsequent period (corporatefinanceinstitute, 2019). The Patel
Company recognizes payroll expense as per its payment cycle which is done on following Friday
for every week. It can be seen that for the whole month of September the company makes the
payment on the following Friday of the week but the balance day adjustments are performed at
the September month end. As it can be seen from the given case the company will make the
payment for last 4 working days of September in the first Friday of the next month. Thus to
determine the balance of the accrued Payroll Account as on 30th September the ledger account is
prepared as follows:
Accrued Payroll Expense Account
Date Particulars Amount Date Particulars Amount
30-
Sep
To Balance
C/D $ 22,400
30-
Sep Direct Labour Cost A/c $ 13,440
30-
Sep Indirect Labour Cost A/c $ 4,480
30-
Sep Selling Expenses A/c $ 3,136
5

30-
Sep General and Admin Exp A/c $ 1,344
Total $ 22,400 Total $ 22,400
Thus it can be seen from the above ledger account that the Closing balance of Accrued Payroll
expense for the month of September is $ 22400 which is carried to the next month and payment
for the same is done in October.
6

Question (C)
In the given case it has been said that the company is passing a single journal entry for making
payment of Accrued salary at the last day of each month for labour cost and remission of
taxation.
I. Weekly Journal Entries
Date Particulars Debit Credit
12-Sep Direct Labour Cost A/c Dr. $ 24,000
Indirect Labour Cost A/c Dr. $ 8,000
Selling Expenses A/c Dr. $ 5,600
General and Admin Exp A/c Dr. $ 2,400
To PAYG Payable $ 12,000
To Accrued Payroll Expenses $ 28,000
19-Sep Direct Labour Cost A/c Dr. $ 24,000
Indirect Labour Cost A/c Dr. $ 8,000
Selling Expenses A/c Dr. $ 5,600
7

General and Admin Exp A/c Dr. $ 2,400
To PAYG Payable $ 12,000
To Accrued Payroll Expenses $ 28,000
26-Sep Direct Labour Cost A/c Dr. $ 24,000
Indirect Labour Cost A/c Dr. $ 8,000
Selling Expenses A/c Dr. $ 5,600
General and Admin Exp A/c Dr. $ 2,400
To PAYG Payable $ 12,000
To Accrued Payroll Expenses $ 28,000
30-Sep Direct Labour Cost A/c Dr. $ 19,200
Indirect Labour Cost A/c Dr. $ 6,400
Selling Expenses A/c Dr. $ 4,480
General and Admin Exp A/c Dr. $ 1,920
8

To PAYG Payable $ 9,600
To Accrued Payroll Expenses $ 22,400
30-Sep Accrued Payroll Expenses A/c Dr. $ 106,400
To Cash $ 106,400
30-Sep PAYG Payable A/c Dr. $ 45,600
To Cash $ 45,600
Thus weekly journal entries have been shown in the above table for determining the amount
which has to be paid at the month end. Also entry relating to the payment of Payroll expense and
tax has been done at last day of the month i.e. on 30th September.
II. Ledger Accounts
Direct Labour Account
Date Particulars Amount Date Particulars Amount
12-
Sep To PAYG Payable
$
7,200
30-
Sep To Profit and Loss A/c
$
91,200
9

12-
Sep
To Accrued Payroll
Expenses
$
16,800
19-
Sep To PAYG Payable
$
7,200
19-
Sep
To Accrued Payroll
Expenses
$
16,800
26-
Sep To PAYG Payable
$
7,200
26-
Sep
To Accrued Payroll
Expenses
$
16,800
30-
Sep To PAYG Payable
$
5,760
30-
Sep
To Accrued Payroll
Expenses
$
13,440
Total
$
91,200 Total
$
91,200
Indirect Labour Account
Date Particulars Amount Date Particulars Amount
10

12-
Sep To PAYG Payable
$
2,400
30-
Sep To Profit and Loss A/c
$
30,400
12-
Sep
To Accrued Payroll
Expenses
$
5,600
19-
Sep To PAYG Payable
$
2,400
19-
Sep
To Accrued Payroll
Expenses
$
5,600
26-
Sep To PAYG Payable
$
2,400
26-
Sep
To Accrued Payroll
Expenses
$
5,600
30-
Sep To PAYG Payable
$
1,920
30-
Sep
To Accrued Payroll
Expenses
$
4,480
Total
$
30,400 Total
$
30,400
Selling Expenses Account
11

Date Particulars Amount Date Particulars Amount
12-
Sep To PAYG Payable
$
1,680
30-
Sep To Profit and Loss A/c
$
21,280
12-
Sep
To Accrued Payroll
Expenses
$
3,920
19-
Sep To PAYG Payable
$
1,680
19-
Sep
To Accrued Payroll
Expenses
$
3,920
26-
Sep To PAYG Payable
$
1,680
26-
Sep
To Accrued Payroll
Expenses
$
3,920
30-
Sep To PAYG Payable
$
1,344
30-
Sep
To Accrued Payroll
Expenses
$
3,136
Total $ Total $
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