Three peas in a pod

Philip Dunn simplifies the preparation and maintenance of the wages and salaries control account, the wages and salaries account and the PAYE/NI control accounts

Trainee Accounting Technicians preparing for assessment in Unit 2 Making and Recording Payments, need to develop competence in the preparation of a wages and salaries control account and its links with the wages and salaries account, together with the maintenance of the control accounts to record both statutory and non-statutory deductions that effect the amount of employees' net pay.

In the knowledge and understanding criteria for the unit there is mention (note 22) of Payroll Accounting Procedures: Accounting for gross pay and deductions through the wages and salaries control account and this is also referred to in Element 2.1 (of the unit) – Process Payments – Payroll.

In the past, the topic has been assessed in both Unit 2 Skills Tests and the PLB Foundation Examination (section 2). It could also be tested in IAC Introductory Accounting Examination in the Diploma Pathway. It is a most popular topic with both the assessors and examiners and one that students at this level often find difficult.

In most businesses, wages and salaries form a significant part of total revenue expenditure. The total wages and salaries comprises not only the gross pay due to the employees but also the additional burden of the National Insurance contribution (NIC) paid by the employer.

The wages and salaries control account is, by nature, a total account, as are the sales ledger control or debtors control accounts, which comprise batch totals. Integrated accounting systems will have not only the wages and salaries control but also a wages and salaries account in the general ledger.

The purpose of the control account is to provide the facility for posting the payroll transactions for a particular period to the general ledger. The following example illustrates the procedure.

Case study

Northcliffe Feeds employs eight staff and operates a monthly payroll. The figures for January 2008 showed:

Gross pay £14,100
PAYE (income tax deducted) £2,150
National Insurance (employees’ contribution) £1,080
National Insurance (employer’s contribution) £1,310
Net pay (paid by BACS) £10,870

From this information, we can prepare the wages and salaries control account, the wages and salaries account and the PAYE/NI control account.

(1) The account is debited with net pay and credited to the bank.
(2) The account is debited with the PAYE deducted from the employees’ gross pay. This is credited to the PAYE/NI control account, as this is held over and paid to HM Revenue & Customs (HMRC) by the 19th of the month following.
(3) Likewise, the NIC deducted from the employees’ gross pay is debited from the account and credited to the PAYE/NI control account.
(4) & (5) The total of these entries represents gross pay, which is transferred to the debit side of the wages and salaries account. * Some texts show this as posted to the control account.

(6) The extra burden of employer’s NIC is debited here and adds to the cost of employment, so is credited to the PAYE/NI control account.
(7) The balance at the end of the month is carried down. At the end of the financial year, it would be transferred to the profit and loss account. To complete the picture, we need to show the extract from the PAYE/NI control account:

This represents the total (creditor) owed to HMRC for the current month.

Philip Dunn FMAAT is a lecturer and author

Accounting Technician - May 2008 - Page 28