General theory on accounting for payroll and salary deductions.doc

General theory on accounting for payroll and salary deductions

PART I

GENERAL THEORY ON ACCOUNTING FOR PAYROLL ANDSALARY DEDUCTIONS

I-BASIC FEATURES OF PAYROLL AND SALARY DEDUCTIONS

1 Concept, features and the useful of accounting for payroll and salarydeductions

1.1 Concept on salary

Money is not means of exchange but it is also means of measuring thevalue of men’s labour In economic theory, ‘labor’ is any work undertaken inreturn for a fix payment.’Payroll’ is the amount of the money the labor get inreturn as their result of work which is used to re-produce their work ability.Anyway, the salary they receive under the form of money is niminal wage,when wage is used to purchase specific goods on the market it is real wage.Tocaculate the niminal wage accurately it is necessary to base on real wagethrough the change of price on the market This is very important because itrelates to the salary unit price Besides, the wage to ensure re-produceworking ability also be accounted for production cost as an compulsory costunder the rule of Government State, it includes these types:

1.2 Salary deductions

Along with salary, wage, allowances counted for entrprise’s productioncosts are:

1.2.1.Social insurance fund

This fund establisted as a source of capital, aids to the staff in thesesituations: ill, pregnancy, over the age in work, die, on-the-job accident,occupational disease, lose job, get in risk, lose strength, retire

Social insurance come along with labor’s life, it is objective, indispensable,it does not occurs steadily with the time Social insur ance’s nature is social,economic as well as service In according to current system, Decision No.912CP/BHXH dated 07/11/2005 stipulates Social insurance regime, this fund isbuilt by deducting 20% from the payroll fund and daily allowances of thelabor in the fiscal year, in there 15% which the hirer paid is counted forproduction cost of the company and 5% is deducted directly from employees’salary.

Social insurance fund is managed by the Ministry of Labour, WarInvalidsand Social Affairs.

Monthly, at the enterprises, pays for the labor who get ill, pregnancy,…bases on that to make regular and legal vouchers (accounting clerk makessocial insurance voucher pay for labor follow the form No.03-LTDL ,accounting voucher regulation).At the end of the month or the quarterthe company must to strike a balance to the organization manages socialinsurance fund.

1.2.2.Health insurance fund

Health insurance is the medical aid to the persons who pay in advance forit , help them with one part of the costs for hospital fees, medical examination,medicines,…Health insurance fund forwards to establish a public health carenetwork Only persons who take part in this fund will receive healthinsurance According to the current rule of the financial system healthinsurance is deducted 3% on the basic payroll fund, in there, 2% is counted forproduction cost, the rest 1% is deducted from labor’s income.

Health insurance fund is delivered to the authorized association under theform of buying health insurance in order to serve and care staff’s health suchas: medicine examination, hospital fees…during the time they get ill, givebirth,…

1.2.3.Trade union fee

Trade union fee is spent for union activities, this fund is established witha specific rate count on the real payroll fund appear in particular month andcounted for production cost.Trade union fee is deducted 2%, in there, one partis sent to the top management of company, the rest is remained to spend forenterprise’s activitives

Deductions from salaries as social insurance, health insurance, tradeunion fees along with employees payable form labor cost in the overheadsfactory costs Managing caculation, deduction, spending and using of thesefunds not only important to the overheads factory costs management butensures right for the labor of the company as well.

2 Payroll funds and payroll regulations

2.1 Payroll funds

Payroll fund is all amount of money the company has to pay for its labor, itis managed and used directly by the company according to the labor quantityand the labor quality, it includes these items:

* Salary by hour* Salary by products

* Salary pay for the labor gets off because of objective causes, appointedto another post, on leave, go on recruite follow the regular system

There are three types of defining salary unit price as follow:

<> Salary unit price caculated bases on unit of product (or convertproduct), defined bases on factors such as coeffictient and salary grade limit,product norm, time norm, work norm of the clerk and allowances whichfollow the rule of Government State.

<> Salary unit price caculated bases on profit in plan This method isapplied in the multiple manufacturing company with detail labor norm,therefore it is difficult to define employees payable in the total costs, themethod is caculated as follow:

Total labor x Average salarySalary unit price =

Total profit<> Salary unit price caculated on turnover:

Total labor x Aaverage salarySalary unit price =

Monthly salary = The real days at work in a week x daily wage

Monthnly salary x 12 months

Weekly salary =

52 weeks

Monthly salary

Daily wage =

The days work in a month

Daily wage is the foundation to caculate social insurance, subsidy to paythe employees or on the meeting days, or the days they go on training

Daily wages

Hour wage =

8 hours

Hour wage is the foundation to caculate subsidy for extra-work

Simple hour wage = real time at work x unit price

Hour wage with bonus included

Substantially, this is the combination between Simlpe hour wage formwith frequantly bonus form the payroll fund The amount of bonus dependson the amonunt of finished work Therefore, this type is more motivate,encourages employees than other ones Though, this type not yet show thefact of the relation between employee ability and employee effectiveness 2.2.2 Salary by product

Employees are paid bases on quantity, quanlity of their products, amountof works they have done and bases on the unit price caculated per work unit.Paying salary by product can be practised in difference ways

- Paying salary by products directly to individual: this type is regularly

applied to self-contained labor ,direct-working worker with work norm whichcan check and take over

Salary payable = Unit price x finished works

Salary by grade (wage by hours, by days)

Unit price =

Work norm by hour, day or month

Or Unit price = Salary by grade x amount of product

(wage by hour,by day)

- Salary payable for indirect employees : this type is applied to indirect labor

whose work have big effect on direct labor’s work, so that, to caculate salaryit is necessary lying on quality, capacity, work result of the direct labor

Salary unit price of x finished work of

Salary = the sub-labor chief-worker

- Salary by product of work-group : follows this type the company pays to the

individual employee by group (unit, mill, …) then, payroll is distributed toeach of the worker in the unit or group bases on basic salary and the real timeeach one at work The formula to caculate as follow:

Lt

∑ Ti x Ki

- Salary by piece-work: Salary payable to the group or worker is promised for

awork norm, product norm under job-work unit price If worker work in agroup his salary will be paid by the mode salary payable to group

- Salary by product with bonus included: Beside getting salary pay by direct

product, the labor also gets bonus for raise productiveness, save material,higher product quality

L x (M+H)Lth = L+

100In there:

-Lth: salary by product with bonus included -L : salary by direct product

-M: percent of salary exceed the set standard -H: percent of product exceed the set standard

-Salary by progressive product: with this type, the labor is paid depends on

the amount of direct products they have done added with the percent ofprogressive product which based on the rate of exceeding the set standard2.2.3 Some other types of salary

Beside the above modes, depends on the scale, conditions and features ofthe business organization then enterprise can applied these type of payingsalary:

- Salary pay for the final result- Salary by salary group fund

- Salary pay by amplitude of set by standard

II-CONTENTS OF ACCOUNTING FOR PAYROLL AND SALARYDEDUCTIONS

1 Content of payroll accounting

Form 06- LDTL- Certification of performanceForm 07- LDTL- Overtime record

Form 08- LDTL- Piece-work engagement contractForm 09- LDTL- Accident investigation report

1.2 Accounts in use

ACCOUNT 334- PAYABLE TO EMPLOYEES

This account records salaries, wages, social insurance and other payablesthat are due to the employee, as well as the payment of these liabilities.

1.3 Methods of payroll accounting

Debit:

- Record salaries, wages, bonuses, social insurance and other amountswhich have been paid or advanced to the employees

- To record deductions of salaries and wages from the employees salary.

Credit:

To record amounts payable to employees such as salaries, wages, bonusand social insurance.

Credit balance:

- Shows amount payable to employees such as salaries, wages, bonuses,

and otherpayable to employees

- This account can have a debit balance which show that the amount paidto employees was greater than what was payable.This account should be kepttract of under two headings: salaries payable and other payables.

Major transactions:

1 To record salaries, wages, and other allowances which are payable toemployes

Dr.241- Construction in progressDr.622- Direct labor cost

Dr.627- Factory overhead costs (6271)Dr.641- Sellling expenses (6411)

Dr.642 General and administration expenses (6421)Cr.334- Payable to employees

2 To record bonuses payable to employees Dr.431- Bonus and welfare fund

Cr.338- Other payableCr.138 - Other receivable

6 To record the personal income taxes which must be paid to the stateDr.334- Payable to employees

Cr.333- Taxes and other payable to the state budget7 To record the payment to the employee

Cr.111- Cash on handCr.112- Cash in bank

2 Contents of salary deductions accounting

2.1 Vouchers in use

Form 01- LDTL- Time-sheetForm 02- LDTL- Payroll

Form 03- LDTL- Social insurance leave slipForm 04- LDTL- Social insurance payment sheetForm 05- LDTL- Bonus payment sheet

Form 06- LDTL- Confirmation of finished products or workForm 07-LDTL- Over time record

Form 08-LDTL- Lump-sum work contract

Form 09- LDTL- Record of working accident examination

2 The value of asset surplus payable to individuals or entities (internal andexternal) according to the authorities decision.

3 The recognition and payment for social insurance, health insurance andtrade union fees.

4 Withholdings from employees’ salaries based on court’s decision(allowance for children when divorced, cour fees, compensation, etc).

5 Amount payable as a result of holding deposites of another entitiy.6 Dividends payable to joint venture partners.

7 Amount payable for temporary borrowing of materials and /or money.8 Amount received from consignors or their agents who are involed in theimport, export business in order to pay export tax, import tax, duties, turnovertax etc.

9 Other amount payable or receivable.

2.3 Method of accounting for salary deductions

- Recognise social insurance, health insurance and trade union fees asbusiness expenses of the current period.

- Health insurance withheld from employees’ salary.

- Injection from funds to cover over payment of social insurance and tradefees

Accounts for salary deductions is composed as follow:

-Acount 3382- Trade union fees payable: to record recognition and

payment for trade union fees

-Acount 3383- Social insurance payable: to record recognition and

payment for social insurance

-Account 3384- Health insurance payable : to record recognition and

payment for health insurance according to regulations

Major transaction:

- Monthly withholding of social insurance, health insurance and trade unionfee

Dr.241-Construction in progressDr.622-Direct labor costs

Dr.627-Factory overheadcosts

Dr.642-General and administration expenses

Cr.338-Other payable (3382-Trade union fees 3383- social insurance,3384-health insurance).

- Caculate health insurance deducted from employees’ salaries.Dr.334-Payable to employees

Cr.338-Other payable (3384)

- Submit social insurance health insurance and trade union fees to authoritiesDr.338-Opther payable

Cr.111-Cash on handCr.112-Cash in bank

- Caculate social insurance payable to employeesDr.338-Other payable (3382,3383)

Cr.334-Payable to employees

- To record spending out of the company’s social insurance and trade unionfund

Dr.338-Other payable(3382,3383)Cr.111-Cash on hand

Cr112-cash in bank

- To record a refund due to excessive payments made for social insurance andtrade union fund which have been returned

Dr.111-Cash on handDr.112-Cash in bank

DEVELOPMENT AND IMPORT-EXPORT COMPANY

I- OVERVIEW OF SONG HONG CONSTRUCTION DEVELOPMENTAND IMPORT-EXPORT COMPANY

1 The formation and the development of the company

* NAME: Song Hong construction development and import-exportcompany

* STAFF: 210, in there, officers: 30

Song Hong construction development and import-export company is owned enterprise, at the beginning it was a branch of construction and import-export company under Song Hong construction corporation SHODEX at thetime was a wholesaler, specialized in selling: aluminum, concrete, enameledtile, … for Song Hong Construction Corporation The company did businessmainly with Song Hong Aluminum joint-stock company, constructionmaterials and concrete industry company.

state-From the year 2001-2002, catching up with the national development andmarket demands the company officially expanded into the constructionbusiness SHODEX has executed civil and industry construction projects.

2 Functions and primary mission of the company

SHODEX business activity goals in 2003-2004-2005 are showed throughfigures on the table below:

SONG HONG SONG HONG CONSTRUCTION

DEVELOPMENT AND IMPORT-EXPORT COMPANY

SHODEX business activity goals in 2003-2004-2005 Type of currency :VND

Revenue fromsales

Pretax incomeSource of capitalStaff

Payroll fundAverage wageper man

98.984.097.628

411.323.88736.308.376.290 190

4.617.798.074 13.47.567

103.392.547.430 2.411.788.691 47.064.710.688 200

6.893.704.500 18.720.000

105.760.439.633

2.453.641.967 52.923.136.231 210

7.238.312.102 34.417.230

(Source: Accounting Department)

According to SHODEX’s business activity goals, turnover of thecompany in the year 2003-2004-2005 has increased highly and steadily Otherfigures such as pretax income , payroll fund … have gone up Theseachievements have resulted from Board of management’s role in improvingits management system as modernly and plainly, meets the company’srequirements and suits to current business activities.

SHODEX’s main activities in fields such as civil, industry, transportation, investmentnd development business and import-export business Therefore, SHODEX’smain fields of activities in legal document are:

* Executes construction projects such as: civil, industry, transportation,water supply and drainage, irrigation system, infrastructer projects

* Executes power transmission lines, purchases and develops house

* Transportation business, construction materials, unload material buildingand other goods

* Hotel, restaurant and tourism business and other tourism services

* Exploits ore for smelting , manufactures agriculture and forestryproducts

* Import-export construction materials and equipment, foodstuff, othertype of goods which permitted for exploiting and manufacturing

One of the main business activities of SHOEX is executes constructionsuch as:trasportation, industry, civil

۩ The main features of its executing process

To have the construction projects well-done the company must applicatetechnology in executing the projects Each project has its own way ofexecuting but the technology process of SHODEX’s construction productscan be generalized in these stages:

< > Preparing stage: in this stage the company takes over floor-space and

prepares all the factors which obeyed the execution design, makes plan formaterials , equipments, sets up execution technology ,prepares manpower

< > Executing stage: this stage obeys steps which set up by technical

department in plan Each construction project obeyed its own operatingprocess which planned

< > Finishing stage: This is the last step in technical process of the

construction product This includes: building power system, water supplysystem, door system, plaster, pave, cover, mastic, paint building which is inuse Then technical department along with its technicians supervise projectand pieces of work which had already finished After assuring constructionquality the authorized manager of the project will prepare to delivery thebuilding to the investor

The construction process is illustrated in the following diagram:

Some of remarkable construction projects of SHODEX are: rebuild QuangNinh Geology Hotel, Cien Co 1 control house, National shooting trainingcollege, Soc Trang consultant camp, Tan De pre-stress concrete and trafficjam, repairing New power center, Ha Noi musical institute flat-block, Viet Habeer company, Campuchia consultant engineer camp…

3 The main feature framework of organization

Based on business field, basic mission of construction enterprise, themanagement system of SHODEX has been organized as the chart follows:(Appendix )

The departments’ roles in the organization:

* Director is responsible for making major policy decisions, making

decisions about the goals and activities that an individual, a group, a workunit or the overall organization will pursue in the future, monitoring progressand making needed changes

* Construction deputy director: is responsible for reporting to the director,

controlling administrative activities of civil and industry construction projects

* Business and import-export deputy director: is supposed to do business

and import-export goods, making strategies, searching suppliers and newmarket segments

SHODEX has six functional departments with the members of 30 officers:

- Technical department with 3 members, assists to director in supervising

the fields such as making plan for projects’ schedule

- Investment & planning department: with 2 members is functional

department of SHODEX, plans production and construction investment oforganization By organizing to receive and collect necessary information,experting potential market and market demands then it give staff to themanager Researching and making solutions to archive target Managingmaterials fields, equipments and assets…

- Labor department: with 3 members manages staff dossier, organizes and

control manpower, assistant to the director in making plan, training &recruiting staff It operates clerical work keeps organization’s secrets, keepsdocuments as archive , insect and control the implementation of the internalpolicy

- Import-export business department: with 3 members assists to the

director in making business and production plan, bringing into full playmarket price, making price-list for projects, making economy contracts

- Financial accounting department: with 6 members, organizes expenses

accounting or makes mobilizing source of capitals in order to assure projectsis finished in time, checks liquidate with the Corporation, bank, customs,staff Writes down, analysises business events, balances expenditures andincomes, makes regular reports Organizes annual or sudden inspect followsthe top-managers’ requirements, responsible for assisting to the director infinancial management and organizes expenses accounting of the company

- Southern representative office: is on duty of doing business activities in

southern area

- Construction units: are in charge of managing their units and organizing

execution under their task, organize to sign internal economy contracts,liquidate hire by the price contract of the units Bases on units’ schedulemaking production control plan to assuring the quality and punctuality indelivery time of product design, manages workers, security and hygienic.Leaders of a gang of construction are responsible for reporting directly to thedirector

Construction units are the sectors where main business events occurredthey are the bases to carry out vouchers: import vouchers, export vouchers,daily working table…it makes foundation for accounting in liquidateexpenditures and calculates cost price

4 The main feature of the company’s business activities

The National economy is on market economy, therefore, all the enterprisesneed to push up capacity, improve technology to advantage their productionand business In the current strong competitive condition , price for bid islower than that before, so that, to assure incomes as well as profits

SHODEX’s board of management always try their best to search and expandmarket and modern their manage system as well

In the year 2006 SHODEX is changing into joint-stock company under theDecision No.1368 by Ministry of construction dated 05/07/2005.This will bethen remarkable year with strong changes of the company, mobilizes muchmore source of investment capital, encouraging the staff’s ability, raisingproductivity that mean the standard of living of the all company staff isimprove

5 The main features of the company’s accounting system

5.1 Accounting system

Song Hong construction development and import-export companyorganized its accounting apparatuses as concentrated mode, periodly at theend of the month accounting clerk gethers and makes generalble table,transfers to the financial department all the original vouchers to record ontothe auditing accounts book.

In order to motivate important function of the manufacturing managementof the company, the accounting system has been organized scientifically,reasonably, operates effectively, supply information in-time, exactly andadequately Besides accounting books system, SHODEX has appliedaccounting software Business Accounting KTDN 2002 Therefore, theaccounting numeric data is recorded in both books and disks, assuresaccuracy, adequately of the accounting information whenever need comparingor supplying to board of managers

Accounting organization of SHODEX is showed on the below diagram

(Appendix )

Looking at the diagram, we can see there are six functional accountants inaccounting department: 01 chief accountant, 01 deputy departmentaccountant, 04 functional accounting clerks and 01 cashier

These clerks have their own function as detail follow:

- chief accountant: manages in general accounting system of the company,

reports to the director for all of financial accounting tasks, controls generalaccounting tasks, supervises all parts of the accounting tasks, supervises thework of accounting clerks and their routine record keeping functions,manages in general all costs to make financial report and provide to themanagement to make decisions

- Department deputy accountant: is payable accountant has tasks such as:

supervise money transactions through banks, expenditures and incomespayment for customers, bank and National budget…

- Goods and materials accountant is in charge of supervising and

generlising information relate to in-put and out-put materials , inventories

- Assets, tools and equipments accountant supervise increase or decrease

of the items, calculating and ad equating depreciate aids to cost generalizingaccounting

- Payroll accounting: monthly calculating payable salaries for employees,

distributing cost of payable life insurance to generalize expenditures forcalculating cost-price

- Expenditures and incomes cost-price general accountant does the rest

bookkeeping that the other parts haven’t done, collect, expenditures,calculates cost-price, verifies results, supervises numeric data from otherdepartment , supplies for closing books, makes reports and sends to theCorporation

- Cashier is the person manages all amount of cash of the company, bases

on regular receivement , payment orders to receive , pay and record on cashfund book

- Board of financial accounting units: are on duty of supervising and

calculating in detail materials, wages, money payable, generalize expendituresarise at the beginning of contracts, projects Summarize numeric data thensend to financial department of the company as well as explain clearly andreasonably all the link data assure that financial information is servedadequately and completely

۩ The general situation of applying accounting policies in the company

SHODEX’s accounting system is pursuant to Decision 1141/Q§- C§KT dated 1/11/1995 of the financial ministry and pursuant to the DecisionQ§ 4/Q§/BXD of the Ministry of construction about issuing the newaccounting system for construction enterprises

btc-The new accounting system has been applied SHODEX as follows:

- Fiscal year: begins on the first of January to the thirty one of Decemberevery year

- Type of currency: Viet Nam dong

- Rules and methods of money exchange: receive and pay foreign currencycalculate based on the current exchange rate issued by Viet Nam State Bank

- Fixed assets: accounting method+ account for fix assets: actual statistic+ depreciation: straight-line depreciation- Inventories:

+ calculate inventories : the perpetual method

+ rules of calculating inventories: actual inventories

- System of accounting is opened pursuant to accounting principles,accounting standards, the corporation drives and constructs detail account,regarding it organization and management characteristic as a constructionenterprise

5.2 Features of accounting task

The accounting form: “General journal” the general journal is a generalaccounting book which records transactions in chronological order Thisjournal records accounting entries which will eventually be recorded in the

The figures in the general journal are posting to the general ledgerThe books system used in this form:

+ General journal+ Special journal+ General ledger

+ Subsidiary ledger cards

Method of recording: (Appendix )

Every day based on original documents to recorded on General journal inchronological order Daily or periodically based on figures recorded onGeneral journal to record into the General Ledger which correspond to thecredit entries

- Specialties, which need calculating in detail are recorded both in generaljournal and subsidiary books

- In case, the company opens special journals in addition, accountantsdaily base upon on original documents to record business events intosubsidiary specialty journals, after that, every 3, 5, 10 days or at the end ofevery month (depend on the amount of the events ) generalizes from specialtybooks to record into ledger with correspondence accounts

- At the end of the month or quarter accountants make the balance sheetbased upon on the legers

- At the end of the month or quarter accountants make general detailedsheet based upon on detailed accounting data, these figures are compared withones in the ledger

- After comparing figures in ledger and detailed general sheet, accountantsmake financial report

According to “General journal” form the company opens these types ofbooks:

Thecompany calculates inventory under the perpetual method and sales tax underdeduction method

Microcomputer system applied in accounting task(Appendix )