Fundamental Payroll Certification Fundamental Payroll Payroll Accounting Principles 4 — Questions and Answers
Question 1: Which statement best describes the difference between wages payable and wages expense?
- Wages expense is an income statement account; wages payable is a balance sheet liability (Correct answer)
- Wages payable is an income statement account; wages expense is a balance sheet asset
- Both are income statement accounts but in different periods
- Both are balance sheet accounts but on opposite sides
Correct answer: Wages expense is an income statement account; wages payable is a balance sheet liability
Wages expense flows through the income statement reducing net income, while wages payable is a balance sheet liability representing amounts owed but not yet paid.
Question 2: When a payroll tax deposit is remitted via EFTPS, the journal entry includes a credit to:
- Cash (Correct answer)
- Payroll Tax Expense
- FICA Taxes Payable
- Federal Income Tax Expense
Correct answer: Cash
Remitting a tax deposit reduces the company's cash and eliminates the related payroll tax liability.
Question 3: Which account is credited when recording an employee's voluntary 401(k) deferral deduction from gross pay?
- 401(k) Contributions Payable (Correct answer)
- Wages Expense
- Employee Benefits Expense
- Cash
Correct answer: 401(k) Contributions Payable
The employee's 401(k) deferral is withheld from gross pay and held as a liability (401(k) Contributions Payable) until remitted to the plan.
Question 4: A payroll department discovers that an employee was overpaid $300 in the prior period. Which entry corrects the balance sheet if repayment is received in cash?
- Debit Cash $300 and credit Wages Payable $300
- Debit Wages Expense $300 and credit Cash $300
- Debit Wages Payable $300 and credit Wages Expense $300
- Debit Cash $300 and credit Wages Expense $300 (Correct answer)
Correct answer: Debit Cash $300 and credit Wages Expense $300
Receiving repayment of an overpayment increases Cash and reduces (credits) the Wages Expense originally overstated.
Question 5: Paid time off (PTO) accruals should be recorded when:
- Employees earn the PTO, regardless of whether they take it (Correct answer)
- Employees actually use the PTO
- The company's fiscal year ends
- PTO balances exceed the company's policy cap
Correct answer: Employees earn the PTO, regardless of whether they take it
Under the accrual method, PTO is expensed as employees earn it to match the cost with the period the benefit was earned.
Question 6: Which of the following best describes the matching principle as applied to payroll?
- Wages earned in a period must be expensed in the same period even if paid later (Correct answer)
- Wages are expensed only when the check clears the bank
- Payroll costs are matched to the fiscal year in which employees were hired
- Employer taxes are matched to the quarter in which they are deposited
Correct answer: Wages earned in a period must be expensed in the same period even if paid later
The matching principle requires that wage expense be recognized in the same period as the revenue generated by the employee's work.
Question 7: A company records $10,000 of gross payroll. Employee withholdings total $3,000. What is the net pay liability recorded?
- $7,000 (Correct answer)
- $10,000
- $3,000
- $13,000
Correct answer: $7,000
Net pay is gross wages minus all employee withholdings: $10,000 − $3,000 = $7,000 owed to employees.
Fundamental Payroll Certification Fundamental Payroll Payroll Accounting Principles 4
Which statement best describes the difference between wages payable and wages expense?