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Hallo,
In the following example, I am coming up to the answer, but am not sure if I am doing it correctly or the final answer is a coincidence:
SAD paid $240,000 in net wages to its employees in August. Employees’ tax was $24,000, employees’ national insurance was $12,000 and employer’s national insurance was $14,000. Employees had contributed $6,000 to a pension scheme and had voluntarily asked for $3,000 to be deducted for charitable giving.
What is the amount of wages expense to be charged to the income statement in August?The answer is 299 000 = and I assume it is solved as:
240+24+14+12+9 (6+3) = 299
If this is correct, why 6+3 = 9 is added to the I/S?
Thank you!
Suppose I said that I would pay you a wage of $50,000.
You asked for me to pay a total of 9,000 of your money to a pension scheme and charity.
Then I would pay you only 41,000 and pay the other 9,000 to your pension and your charity. (Ignoring tax and national insurance, which I think you are OK with).
So your net wages would be only 41,000 (the actual cash that I paid you), but it would still be costing me the full $50,000.
I hope that makes sense and explains the answer 🙂
Yes, I gree with you, thank you!
May I ask, in this context for another example, which says:
At the end of the month, an organisation needs to accrue for one week’s wages. The gross wages amount to
$500, tax amounts to $100, employer’s national insurance is $50, employees’ national insurance is $40, and
employees’ contributions to pension scheme amount to $30. The ledger entries to record this accrual would be– the answer is:
Dr Wages expense 550
Cr Tax payable 100
Cr Insurance payable 90 = 40 + 50
Cr Pension scheme payble 30
Cr Accrued wages 330My question is: how do I know that the 330 is to be accrued, how do I understand this from the question?
Thank you!
The first line of the question says that they need to accrue!
If they had paid the wages, then all the entries would have been the same except the last one would have been Cr Cash.
However, since the question says that they need to accrue, then instead of crediting cash we credit accrual.(Incidentally, questions concerning national insurance etc. like this one, cannot be asked in Paper F3!)
1. Ok, we debit expense, we credit accrual, but how is it decided to accrue only 330?
2. How is it decided that tax, insurance and pension are payable is this related to the accruing itself, or it is always that they are payable, as this is not understood in the question, I know it only from the answer?Thank you!
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