Fundamental Payroll Certification Fundamental Payroll Payroll Accounting Principles 2 — Questions and Answers
Question 1: When recording the employer's share of FICA taxes, which account is debited?
- Payroll Tax Expense (Correct answer)
- Wages Payable
- Federal Income Tax Payable
- Cash
Correct answer: Payroll Tax Expense
The employer's share of FICA taxes is recorded as a debit to Payroll Tax Expense and a credit to FICA Taxes Payable.
Question 2: A payroll accrual entry is typically necessary when:
- The pay period ends before the accounting period closes (Correct answer)
- Employees are paid weekly
- Payroll is processed on the last day of the month
- All employees use direct deposit
Correct answer: The pay period ends before the accounting period closes
An accrual is needed when a pay period straddles two accounting periods so that wages earned but unpaid are recognized in the correct period.
Question 3: Which of the following is classified as a current liability on the balance sheet?
- Accrued wages payable (Correct answer)
- Prepaid insurance
- Depreciation expense
- Equipment
Correct answer: Accrued wages payable
Accrued wages payable are obligations expected to be paid within 12 months and are therefore current liabilities.
Question 4: When an employee's garnishment payment is remitted to the creditor, the journal entry includes a:
- Debit to Garnishments Payable and credit to Cash (Correct answer)
- Debit to Cash and credit to Wages Expense
- Debit to Wages Payable and credit to Garnishments Payable
- Debit to Wages Expense and credit to Cash
Correct answer: Debit to Garnishments Payable and credit to Cash
Remitting a garnishment reduces the liability (Garnishments Payable) and reduces the asset Cash.
Question 5: Which payroll register column is used to verify the accuracy of the general ledger payroll entry?
- Total gross wages column (Correct answer)
- Net pay column
- Department code column
- Hire date column
Correct answer: Total gross wages column
The total gross wages column in the payroll register should agree with the Wages Expense debit in the general ledger journal entry.
Question 6: Employer contributions to a 401(k) plan are recorded as a:
- Debit to Employee Benefits Expense and credit to 401(k) Contributions Payable (Correct answer)
- Debit to Wages Payable and credit to Cash
- Debit to 401(k) Contributions Payable and credit to Wages Expense
- Debit to Cash and credit to Employee Benefits Expense
Correct answer: Debit to Employee Benefits Expense and credit to 401(k) Contributions Payable
Employer 401(k) contributions increase benefits expense and create a liability until the funds are remitted to the plan.
Question 7: What is the purpose of a payroll clearing account?
- To temporarily hold payroll transactions before distributing costs to expense accounts (Correct answer)
- To record net pay disbursed to employees
- To track uncashed payroll checks
- To reconcile federal tax deposits
Correct answer: To temporarily hold payroll transactions before distributing costs to expense accounts
A payroll clearing account serves as a temporary holding account that is zeroed out once payroll costs are allocated to the appropriate expense departments.
Fundamental Payroll Certification Fundamental Payroll Payroll Accounting Principles 2
When recording the employer's share of FICA taxes, which account is debited?