ANSWERS TO QUESTIONS
The main internal control objectives associated with payrolls are: (1) to safeguard company
assets from unauthorized payments of payrolls and (2) to assure the accuracy and reliability of
the accounting records pertaining to payrolls.
The four functions associated with payroll are: (1) hiring employees, (2) timekeeping, (3)
preparing the payroll, and (4) paying the payroll.
Gross pay is the amount an employee actually earns. Net pay, the amount an employee is paid, is
gross pay reduced by both mandatory and voluntary deductions, such as FICA taxes, union dues,
federal income taxes, etc. Gross pay should be recorded as wages or salaries expense.
Both employees and employers are required to pay FICA taxes.
No. When an employer withholds federal or state incomes taxes from employee paychecks, the
employer is merely acting as a collection agent for the taxing body. Since the employer holds
employees' funds, these withholdings are a liability for the employer until they are remitted to the
FICA stands for Federal Insurance Contribution Act; FUTA stands for Federal Unemployment Tax
Act; and SUTA stands for State Unemployment Tax Act.
A W-4 statement shows the employee's name, address, social security number, marital status,
and the number of allowances claimed for income tax withholding purposes. A W-2 statement
contains the employee's name, address, social security number, wages, tips, other compensation,
social security taxes withheld, wages subject to social security taxes, and federal, state and local
income taxes withheld.