N4 Accounting Introductory - za.pearson.com...Introductory N4 Accounting SCHOOL FOR SMALL BUSINESS...

Introductory Accounting N4

SCHOOL FOR SMALL BUSINESS MANAGEMENT CC

9781485717355_ntd_iac_n4_stb_eng_za.indb 19781485717355_ntd_iac_n4_stb_eng_za.indb 1 2020/05/22 18:202020/05/22 18:20

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First published in 2020

ISBN 9781485717355 (print)

ISBN 9781485718529 (epdf)

Publisher: Amelia van Reenen

Managing editor: Ulla Schüler

Editor: Miranda Cilliers

Proofreader: Ingrid Brink

Book design: Pearson Media Hub

Cover design: Pearson Media Hub

Cover artwork: Andrus Ciprian. Shutterstock

Typesetting: Robin Yule

Printed by xxxx printers, [city]

Acknowledgements:

Text to follow


Contents

Introduction ..................................................................1Unit 1 Introductory remarks .......................................................................... 2

Module 1: Forms of ownership and wealth generation ....................................................................7Unit 1 Wealth generation .............................................................................. 8

Unit 2 Forms of business enterprises ........................................................... 15

Module 2: Opening a trading concern .....................25Unit 1 Opening a trading concern ............................................................... 26

Module 3: Documents and authorisation of transactions ............................................................33Unit 1 Documents and authorisation of documents .................................. 34

Module 4: Accounting principles and concepts .......53Unit 1 Accounting principles and concepts ................................................. 54

Module 5: Accounting entries of a trading concern ...65Unit 1 The double entry system ................................................................... 66

Unit 2 General Ledger entries ...................................................................... 69

Unit 3 Posting to the Ledger accounts ........................................................ 78

Module 6: Trading concerns: Subsidiary journals and posting to the Ledger .........................................85Unit 1 Cash Receipts Journal (CRJ) ............................................................... 87

Unit 2 Cash Payments Journal (CPJ) ............................................................. 96

Unit 3 Cash Analysis Book .......................................................................... 119

Unit 4 Petty Cash Journal ........................................................................... 107


Module 7: Wages and Salaries Journal ...................135Unit 1 Types of wage systems .................................................................... 136

Unit 2 Overtime remuneration .................................................................. 137

Unit 3 Deductions and contributions ........................................................ 139

Unit 4a Wages envelope .............................................................................. 143

Unit 4 Wages Journal ................................................................................. 126

Unit 5 Salary advice and Salaries Journal .................................................. 151

Unit 6 Recording wage and salary transactions in the CPJ ...................... 154

Unit 7 Posting wage and salary transactions to Ledger accounts (enrichment) .................................................................................... 158

Unit 8 Month-end procedures for some accounts (enrichment) ............. 164

Module 8: Bank Reconciliation ................................167Unit 1 Purpose of the Bank Reconciliation Statement ............................. 168

Unit 2 Purpose and functions of the Bank Statement ............................. 170

Unit 3 Discrepancies between the balances shown on the Bank Statement and in the Bank account ..................................... 171

Unit 4 Steps to reconcile the Bank Statement and the cash journals...... 173

Unit 5 Analyse the Bank Reconciliation Statement of the previous month and reflect errors ................................................................. 189

Unit 6 Stopping cheque payments ............................................................ 202

Unit 7 Post-dated cheques and bank reconciliation ................................. 203

Module 9: End of accounting period procedures ....209Unit 1 The Trial Balance.............................................................................. 210

Unit 2 Calculating profit ............................................................................ 220

Unit 3 The Statement of Financial Position (previously the Balance Sheet) ................................................................................. 230

Glossary .....................................................................236


135

Wages and Salaries Journal

What is covered?You have to be able to post wages and salaries transactions from the Wages and Salaries Journal to the Ledger.

Learning outcomes

After studying this module, you should be able to:

Unit 1■ Identify and briefly define the types of wage systems

Unit 2■ Describe the different ways to exercise control over overtime

and to calculate overtime remuneration

Unit 3■ Define the purpose of deductions from income (pension fund,

pay as you earn/PAYE, Unemployment Insurance Fund/UIF, medical aid, staff association) and determine the employee and employer’s share of the deductions

Unit 4■ Draw up wage envelopes■ Draw up a Wages Journal

Unit 5■ Draw up a Salaries Journal

Unit 6■ Record appropriate accounting entries regarding the wages

and Salaries Journals in the Cash Payments Journal (CPJ)

Unit 7■ Post to Ledger accounts

Unit 8■ Do month-end procedures with regard to salaries and wages

7Module


136 Module 7: Wages and Salaries Journal

LEARNING OUTCOMES

■ Identify and briefly define the types of wage systems

IntroductionIt is important that any organisation or business keeps accurate records of wages and salaries paid. These records are needed by various stakeholders, including:

■ SARS to ensure that the correct levies and taxes are paid over

■ Department of Labour to determine if labour legislation requirements are adhered to

■ Medical fund to ensure that the employee and organisation pay the correct contributions

■ Pension fund to ensure that the employee and organisation pay the correct contributions

■ Employees to determine if wages and salaries are correctly calculated and paid.

1.1 Types of wage systemsThere are different types of wage systems. Wages can be paid per hour or per piece.

1.1.1 Hourly wage systemThe worker or employee receives a fixed hourly wage, regardless of his or her performance. The Department of Labour annually determines the wages for many sectors, such as for domestics and farm workers.

The wage formula in the hourly system is calculated as follows:

Fixed rate per hour × number of hours worked for the week

1.1.2 Piece wage systemEmployees or workers are paid for the amount of work or piece of work completed. Payment is made according to output which means that the person is paid more for being productive. For example, the person can be paid for number of sheep that were sheared or grape baskets picked for the day.

The piece wage formula is calculated as follows:

Rate per unit × number of units completed

NoteThe focus of this course is not on legalities as set out in the Basic Conditions of Employment Act (No. 75 of 1997).

You only need to know about the accounting aspects of remuneration.

Unit 1: Types of wage systems


137 Unit 2: Overtime remuneration

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LEARNING OUTCOMES

■ Describe the different ways to exercise control over overtime and to calculate overtime remuneration

IntroductionWorkers can receive overtime remuneration when they work more hours than the normal working hours agreed to or stipulated in their employment contract. If workers are going to work overtime, their contracts have to specify what the agreement is between the employer and the worker with respect to overtime.

2.1 Recording overtimeIt is necessary to know about some aspects legal aspects governing overtime as you, as an accountant, will have to record and sometimes calculate wages, salaries and other amounts related to income in accounting documents.

Organisations use various ways to record the number of hours that workers work overtime so that overtime remuneration cannot be abused and also as a means of protecting workers from exploitation.

The clock card system is commonly used. Each worker has his or her own clock card. The worker places the clock card into the clock card machine, which captures the starting time (clock in) and closing time (clock out).

It is dishonest to clock in or out on behalf of another worker who is late, leaves early or is absent. These are grounds for a disciplinary hearing and eventual dismissal.

2.2 Normal working hours and overtime workThe Basic Conditions of Employment Act (No. 75 of 1997) regulates the number of hours for which employees are allowed to work overtime. Employees are not allowed to work overtime for more than 10 hours per week.

The Basic Conditions of Employment Act also states that a person may not work more than 45 hours per week as normal time. This implies that someone working five days a week will work nine hours a day. If an employee is required to work more than 45 hours per week, the employee is entitled to overtime remuneration. However, no employee may be required to work overtime or may be allowed to work overtime if there is no prior agreement about how the employee will be remunerated or rewarded for overtime work.

An organisation or business may reduce normal working hours to 40 hours per week. If the employment contract states that the employee will work 40 hours and

Figure 7.1 A clock card machine

Unit 2: Overtime remuneration



five days a week, the employee will work eight hours per day. When the employee works more than 40 hours for the week, the employee will be entitled to overtime remuneration.

2.3 Calculating remuneration for overtimeThe law prescribes that overtime is calculated as one-and-a-half times the normal hourly rate.

People earning more than the threshold amount of R205 433.30 per year are excluded from the Basic Conditions of Employment Act regarding requirements of maximum work hours.

This implies that they are not allowed to overtime remuneration and may work more than 45 hours per week. The Department of Labour increases this threshold amount regularly.


139 Unit 3: Deductions and contributions

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LEARNING OUTCOMES

■ Define the purpose of deductions from income (pension fund, pay as you earn/PAYE, Unemployment Insurance Fund/UIF, medical aid, staff association) and determine the employee and employer’s share of the deductions

IntroductionVarious monies are deducted from an employee’s wage or salary for specific purposes, such as medical aid, pension fund, UIF and income tax. These monies are known as employee deductions or employee contributions.

Many employers make an additional contribution to some of these funds or schemes. In this way, the employee receives improved benefits. Monies added in this way are known as employer contributions.

3.1 Pension fundEveryone wants to have the prospect of enjoying their retirement. For this reason employees contribute to a pension fund. Permanent employees contribute a fixed percentage of the basic wage or salary (overtime payments are excluded) for pension purposes. Many employers also contribute a fixed percentage to improve the pension benefits of their staff. These monies are paid over to the pension fund on a monthly basis.

The pension formula is calculated as:

Normal time wage or salary × Pension contribution percentage

WORKED EXAMPLE Pension deduction calculations

Mr John Petersen earns a basic wage of R1 500 per week as a petrol attendant. He contributes 7.5% to the pension fund.

What amount of pension is deducted from his weekly wages?

SolutionPension deduction = Basic wage x Pension contribution percentage = R1 500 x 7.5% = R112.50

Keywordbasic wage the amount a person earns before additional payments such as overtime are added

Unit 3: Deductions and contributions



Exam preparationThe question in the exam may focus on employer contributions, such as:• UIF on a rand-for-rand basis, that is, the employer pay rand for rand the same as the

employee• the medical aid contribution which, is R1.50 for every R1 contributed by the employee• the pension fund, which is R2 for every R1 contributed by the employee.

You will then have to work out how much the employer contribution is.

WORKED EXAMPLE Employer contribution calculations

The employer of a worker contributes 5% to the worker’s pension fund.1. How much does the employer contribute?2. What is the total contribution to the worker’s pension fund?

SolutionEmployer contribution to pension = Normal time salary × Pension contribution percentage = R1 500 × 5% = R75.00

Total contribution to pension fund = Employee’s share + Employer’s share = R112.50 + R75.00 = 187.50

3.2 Pay as you earn (PAYE) or income taxEveryone who earns more than a certain amount must pay income tax. Your taxable income is your income after your pension contribution has been deducted from your salary.

Income tax is calculated on a sliding scale, i.e. the more you earn, the higher the percentage for income tax an employee needs to pay. For this reason our tax system is also known as a progressive tax system, meaning the higher your income the more tax you must pay.

It is the duty or responsibility of the employee to ensure that the employer deducts income tax from his/her salary or wage.

The duty of the employer is to deduct the correct amount of income tax and to pay it every month over to SARS.

Employees, like in most other countries, pay tax on what they earn. This is known as pay as you earn or PAYE.

PAYE is calculated as follows:

PAYE = Taxable income × Income tax percentage

OR

PAYE = (Wage or salary – Pension contribution of employee) × Income tax percentage

Keywordtaxable income an employee’s income after the employee’s pension contribution has been deducted

NoteIn 2001 South Africa changed from a source-based to an income tax system based on place of residence. Residents are taxed on their worldwide taxable income, irrespective from which country the income was earned.


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WORKED EXAMPLE PAYE Calculations

Mr John Petersen earns a basic wage of R1 500 per week as a petrol attendant. He contributes 7.5% to the pension fund and his income tax percentage is 10%. How much is Mr Petersen’s weekly PAYE?

SolutionPAYE = (Wage or salary – Pension contribution of employee) x Income tax percentage = (R1 500 – R112.50) × 10% = R1 387.50 × 10% = R138.75

3.3 Unemployment Insurance Fund (UIF)In South Africa, every employee contributes 1% of their gross wage or gross salary towards the Unemployment Insurance Fund (UIF). When an employee becomes unemployed, the employee can apply to the Department of Labour to draw unemployment benefits.

In addition to the worker or employee contribution to the UIF, every employer must contribute an amount to the value of 1% of the gross salary of each worker or employee towards the UIF. The employer must pay over this combined 2% (deduction from salary plus the employer’s contribution) to SARS before the seventh of every month.

The UIF deduction from the employee’s salary is calculated as follows:

UIF wage or salary deduction = Normal time wage or salary × 1%

WORKED EXAMPLE UIF deduction calculations

Mr John Petersen earns a basic wage of R1 500 per week as a petrol attendant.1. How much is Mr Petersen’s UIF deduction from his weekly wage?2. How much is the UIF contribution that is paid over to SARS per month.

Solution1. UIF wage deduction = Normal time wage × 1%

= R1 500 × 1% = R15.00

2. The employer also has to pay R15.00 per week towards the monthly UIF contribution for Mr Petersen. Because there are four weeks in a month, the contribution equals 4 × R30 = R1 200.

NoteWhen a worker does not work overtime, the basic salary equals the gross salary for that worker.

Keywordgross wage (gross salary) the total earnings before deductions of a worker or employee

NoteIrrespective how much an employee earns, there is a maximum UIF deduction. For 2020, this has been fixed at to R148.72 per month or R37.18 per week.

This is based on a monthly threshold salary of R14 872. These amounts are revised by the Department of Labour regularly.

NoteThe Unemployment Insurance Act and Unemployment Insurance Contributions Act do not apply to:• public servants• learners or students• fixed term contract

workers from countries other than South Africa.



3.4 Medical aidA medical aid gives financial help to employees when they or their families need medical attention. The employee will be the main member and the family of the employee will be the dependants.

3.4.1 Worker or employee contributionThe employee usually pays a monthly contribution in arrears based on the number of dependants and the employee’s basic salary. Employers often also contribute towards employees’ medical aid fees.

WORKED EXAMPLE Mr John Petersen’s medical aid contribution

Mr John Petersen’s weekly wages as petrol attendant amount to R1 500. He is married with two children.His medical aid contribution per week works out as follows:

■ R150 per week for the main member ■ R100 for a spouse ■ R75 per child

Work out the medical aid deduction from Mr Petersen’s weekly wages.

SolutionR150 + R100 + (R75 × 2) = R400 per week

3.4.2 Employer medical contributionsAn employer’s contribution is on a rand-for-rand basis when the employer contributes the same amount as the employee’s deduction. If any employee contributes R25, the employer also contributes R25.

If the contribution of an employer is on a R2-for-every-R1 basis, it means that the employer contributes double the amount as the employee deduction. If an employee contributes R400, the employer contributes R800.

3.5 Staff associationEmployees may also contribute to a staff association or trade union. This amount will be deducted from their wages or salaries. The entity (for example, a government department or a mine) will pay these amounts over to the association. In this way staff association deductions are paid over regularly and on time to the staff association.

Keywordsrand-for-rand basis when an employer’s contribution for the employee is the same as that of the employee

R2-for-every-R1 basis when an employer’s contribution for the employee is double the employee’s contribution


143 Unit 4a: Wage envelope

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LEARNING OUTCOMES

■ Draw up wage envelopes

IntroductionUsually, employees that are paid weekly receive their wages in a specially printed wage envelope. The employer or manager will complete information on the envelope with regard to the wages, deductions and so on.

4a.1 Information on wage envelopeThe wage envelope usually indicates the following items:

■ Deductions (regular amounts subtracted from earnings) ■ Earnings (earnings before deductions) ■ Tariff (hourly rate at which wages are worked out) ■ Net wage (remuneration after deductions).

NoteThe Basic Conditions of Employment Act (No. 75 of 1997) stipulates that an employer must give employees a wage slip (wage envelope) or salary advice slip indicating income and deductions with every wage or salary paid.

WAGE ENVELOPEName: Ms Tiveka Masingi Age: 34Week ended: 23/11/2019 Employee No.: F357

Deductions R Earnings Tariff Hours R

Medical Fund R430.00 Normal time R40.00 40 hrs R1 600.00Pension Fund R120.00 Overtime R60.00 5 hrs R300.00PAYE R173.00 Total earnings R1 900.00UIF R16.00 Less: Total deductions R739.00Total deductions R739.00 Net wage R1 161.00

Figure 7.2 An example of a wage envelope

NoteFor the wage envelope, you only need to complete calculations for employee deductions and not for employer contributions.

Keywordnet wage a worker’s wage after deductions have been made

Unit 4a: Wage envelope



ACTIVITY 7.1 Complete Mr Khumalo’s wage envelope FORMATIVE ASSESSMENT

Mr Peter Khumalo works for Chicken Ranch. He and his wife have three children. The normal hours are 45 hours for the week. He worked 7 hours overtime.

UIF amounts to 1% of the normal time wage, while the pension is 6.5% of normal time wage. His PAYE is 15% of gross wage after pension has been deducted, that is, on taxable income. His medical deductions are R100 for the main member and R75 for each dependant.

Complete the wage envelope for Mr Khumalo.Round off to the nearest cent.

WAGE ENVELOPEName: Mr Peter Khumalo Age: 43Week ended: 19/10/2019 Employee No.: CR23


Medical Fund Normal time R32.00Pension Fund Overtime R48.00PAYE Total earnings

UIF Less: Total deductions

Total deductions Net wage

ACTIVITY 7.2 Complete wage envelopes for Mussel Trading’s workers FORMATIVE ASSESSMENT

Use the information you are given to complete the wage envelopes for the week ended on 21 March 2020 of Mussel Trading’s employees John Stevens (aged 46; Employee no. JOH 08) and Peter Steward (aged 33; Employee no. PET 02).All calculations must be rounded off to the nearest rand.

InformationThe normal hours are 45 hours for a week consisting of 6 days. Mondays to Fridays 8 hours per day and Saturdays 5 hours.

John Stevens worked 8.5 hours on Monday, 8 hours on Tuesday, 8 hours on Wednesday, × 11 hours on Thursday and 7.5 hours on Friday. He arranged with his supervisor to use the extra half hour he worked on Monday to make-up for normal time on Friday and to attend his father’s funeral on Saturday.

■ Earnings for the week: R20 per hour for normal time, and R30 per hour for overtime.

Peter Steward worked 8 hours on Monday, 9 hours on Tuesday, 10 hours on Wednesday, 9 hours on Thursday and 8 hours on Friday. He participated in an unprotected strike on Saturday.

■ Earnings for the week: R22 per hour for normal time, and R33 per hour for overtime.


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Deductions for John Stevens and Peter Steward:

EMPLOYEE DEPENDANTS MEDICAL FUND PENSION FUND PAYE UIF

John Stevens 2 R100 for the member and R40 for each dependant

7.5% of normal wage

22.5% of gross wage after pension has been taken into account

1% of normal wage

Peter Steward 3

Complete the wage envelopes for these two workers by making use of this template.

WAGE ENVELOPEName: Age: 43Week ended: Employee No.:


Medical Fund Normal time

Pension Fund Overtime

PAYE Total earnings

UIF Less: Total deductions

Total deductions Net wage



LEARNING OUTCOMES

■ Draw up a Wages Journal

Exam preparationClear instructions will be given in the exam as to rounding off of calculations, either to round off to the nearest rand or to the nearest cent.

IntroductionAll the information regarding the remuneration of weekly paid workers is recorded in a wage register or Wages Journal. This information will include all contributions of the worker as well as deductions from the gross wages. It will also include cost to company, that is, the total cost of the employee to the company (basic wage or salary, overtime pay, benefits and employer contributions).

4.1 The format of a Wages JournalThe Wages Journal includes the same kind of information as reflected on a wage envelope.

Keywordcost to company the total cost of an employee to a business, organisation or government

Unit 4: Wages Journal

CASE STUDY The Wages Journal reflecting Mr Khumalo’s wage details

The information of Mr Peter Khumalo (for whom you have drawn up a wage slip) has been recorded in the Wages Journal of the business for which he works.

A Wages Journal is usually in a landscape format, but we break it up here into manageable sections.

Wages Journal for the week ended 15 March 2020 WJ3

Employees

Normal time Overtime Gross wageTariff Hours Amount Tariff Hours Amount

P Khumalo R32.00 45 R1 440.00 R48.00 7 R336.00 R1 776.00

Wages Journal for the week ended 15 March 2020 (continued) WJ3

Employees’ deductions NetWage

Employer’s contributions

Pension Medical PAYE UIF Union Total Pension Medical UIF Total

R93.60 R400 R252.36 R14.40 R10 R760.36 R1 015.64 R141.40 R800.00 R14.40 R954.40


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The employer of Mr Khumalo makes the following contributions: ■ UIF: rand-for-rand basis ■ Pension: R1.50 for every rand of employee contribution ■ Medical aid: R2.00 for every rand of employee contribution

Do you agree with the following statements? ■ Mr Peter Khumalo has a basic wage of R1 440.00 per week (45 hours). ■ He has a gross wage of R1 776.00 for this week (45 + 7 hours), i.e. before deductions. ■ He has a net wage of R1 015.64 for this week, i.e. after deductions. ■ Mr Khumalo’s cost to company for this week equals:

Gross wage + Employer contributions = R1 776.00 + R954.80 = R2 730.80

Exam preparationIn the exam, you will either have a question on completing the wage envelope or Wages Journal, usually not both. In the wage envelope, you only need to complete calculations for employee deductions/contributions. In the Wages Journal you need to complete calculations for both the employee and employer contributions.

CASE STUDY Different working hour scenarios inside Ubuntu Farming Project

Employees of Ubuntu Farming Projects work 45 hours over a 6-day week as follows: Monday to Fridays 8 hours per day and Saturdays 5 hours per day.

Let us look at different working hour situations for the week ended on 8 April 2017.

Maria Tapane worked on Monday 8 hours, Tuesday 8 hours, Wednesday 8 hours, Thursday 8 hours, Friday 8 hours and Saturday 5 hours.

Do you agree that Maria Tapane worked no overtime, only the regular 45-hour week?

Thabitha Raseroka worked as follows: on Monday 9 hours, Tuesday 9 hours, Wednesday 10 hours, Thursday 11 hours, Friday 9 hours and Saturday 6 hours. The overtime for the week amounts to:

Thabitha Raseroka

Day Total Normal Overtime

Monday 9 8 1

Tuesday 9 8 1

Wednesday 10 8 2

Thursday 11 8 3

Friday 9 8 1

Saturday 6 5 1

Total 54 45 9



Thabo Madubje worked as follows: on Monday 9 hours, Tuesday 9 hours, Wednesday 10 hours, Friday 9 hours and Saturday 6 hours. On Thursday he was absent, phoned in and brought a medical certificate the next day.

The regular hours and overtime for the week amount to:

Thabo Madubje


Monday 9 8 1

Tuesday 9 8 1

Wednesday 10 8 2

Thursday 0 8 0

Friday 9 8 1

Saturday 6 5 1

Total 43 45 6

Lionel Ntombela worked as follows: on Monday 9 hours, Tuesday 9 hours, Wednesday 10 hours, Friday 9 hours and Saturday 6 hours.

On Thursday he stayed away with no valid reason and without notifying his employer. The regular hours and overtime for the week amount to:

Lionel Ntombela


Monday 9 8 1

Tuesday 9 8 1

Wednesday 10 8 2

Thursday 0 0 0

Friday 9 8 1

Saturday 6 5 1

Total 43 37 6

What is the difference between the hours worked by Mr Madubje and Mr Ntombela?

NoteWhen an employee was ill, in hospital or attended a court hearing, that is, had a valid reason for being absent from work (usually documentary proof is needed), full payment is due as if the employee was at work.

NoteNo working hours will be recorded when an employee merely stays away (with no valid reason, especially not even phoning in).

This means that the employee forfeits the pay for that day. The principle of “no work, no pay” is applied in these instances.


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Thandi Yaso worked as follows: on Monday 12 hours, Tuesday 8 hours, Wednesday 10 hours, Thursday 2, Friday 8 hours and Saturday 6 hours. She arranged with the Human Resources (HR) Manager to take off the overtime worked on Monday on Thursday, instead of getting paid for it.

Thandi Yaso


Monday 12 8 4

Tuesday 8 8 0

Wednesday 10 8 2

Thursday 2 + 6 8 0

Friday 8 8 0

Saturday 6 5 1

Total 46 45 3

Remember4 hours overtime = 6 hours normal time

ACTIVITY 7.3 Complete a Wages Journal for Ubuntu Farming Projects FORMATIVE ASSESSMENT

The case study above focused on Mary Tapane, Thabitha Raseroka, Thabo Madubje, Lionel Ntombela and Thandi Yaso who all work for Ubuntu Farming Projects. You have seen that their normal hours are 45 hours per 6-day week. The case study also shows their working hours for the week ended on 22 March 2020.

Complete the Wages Journal for this week, rounding off amounts to the nearest rand, if you are also given the following information about:

■ the workers’ contributions: ■ UIF: 1% of the basic or normal time wage ■ Pension: 5% of normal or basic wage ■ PAYE: 12% of gross wage after pension has been deducted (12% of taxable income) ■ Medical deductions: already entered

■ the employer’s contribution: ■ UIF: on a rand-for-rand basis compared to the employee’s contribution ■ Pension: R1.50 for every rand of the employee’s contribution ■ Medical aid: R2.00 for every rand of the employee contribution.




Employees

Normal time Overtime Gross wageTariff Hours Amount Tariff Hours Amount

Ms M Tapane R48 R48.00

Ms T Raseroka R44

Mr T Madubje R44

Mr L Ntombela R40

Ms Thandi Yaso R42


Employees’ deductions NetWage



R300

R400

R450

R500

R400


151 Unit 5: Salary advice and Salaries Journal

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LEARNING OUTCOMES

■ Draw up a Salaries Journal

IntroductionIf you understood how to complete the wage envelope and Wages Journal, you will also be able to do salary advices and Salaries Journal.

A salary advice has the same function as a wage envelope. It also contains similar information about the remuneration and deductions of the monthly paid employee.

5.1 Completing a Salaries JournalBusinesses and government departments issue hundreds of thousands of salary advices every month to their staff receiving a monthly salary. These large organisations use computerised systems (for example Pastel or VIP) to automatically complete the information needed for salary advices and the Salaries Journal.

The basic format of a Salaries Journal is as follows:

Salaries Journal for the month of April 2020 SJ4

Name of Employee

Gross Salary

Employee deductions

NetSalary

Employer contributions

Pension Medical PAYE UIF

Staff Assoc-iation Total Pension Medical UIF Total

Total

Figure 7.3 The format of a Salaries Journal

Exam preparationThe salary advice and Salaries Journal are less work than their wage counterparts, since there are usually no overtime calculations involved. For this reason, the examiner often asks you to complete the wage envelope or Wages Journal as these test if you can do the overtime calculations too.

The following activity is best done in groups as it is more complicated than the usual exam questions.

Unit 5: Salary advice and Salaries Journal



ACTIVITY 7.5 Complete a Salaries Journal for Mother City Printers FORMATIVE ASSESSMENT

Lerato Gcaza, Vusi Tembo, Mogamat Langeveldt and Olivia Miza are paid monthly by their employer, Mother City Printers.

Use the employee details and the staff policy to complete the Salaries Journal for May 2020.

Round off to the nearest rand.

Employee details: ■ Ms L Gcaza (aged 34), a single mother with 2 school going children, has a gross

salary of R16 000 p.m. ■ Mr V Tembo (aged 23) is single with no dependants and has a gross salary of

R12 000 p.m. ■ Mr M Langeveldt (aged 46) is married and has 3 young children. His gross salary is

R28 000 p.m. ■ Ms O Miza (aged 30) is recently divorced and has one school going child. Her gross

salary is R21 000 p.m.

Monthly deductions: ■ Pension: 7.5% of basic salary ■ UIF: 1% of basic salary ■ PAYE: Work from an EMP10 (tax deductions table) of a previous tax year or use the

tax tables on the SARS website to calculate the tax payable by the employees. Also make sure that you work from the taxable income.

■ Medical fund: Employees pay 30% of the monthly medical fund contribution. (Main member – R600 p.m., spouse/adult dependant – R800 p.m., per child – R400 p.m.)

Monthly employer contributions: ■ Pension fund: 9% of basic or normal time salary ■ UIF: 1% of basic salary ■ Medical fund: Employer pays 70% of the the monthly medical fund contribution.

(Main member – R600 p.m., spouse/adult dependant – R800 p.m., per child – R400 p.m.)

You will be provided with a blank Salaries Journal page.

ACTIVITY 7.5 Complete a Wages Journal FORMATIVE ASSESSMENT

Based on the information below, complete the Wages Journal, showing column totals, for KZN Fashions for the week ending 15 March 2020. Draw your own Wages Journal and Ledger accounts, rounding off amounts to the nearest rand.

All employees are required to work 40 normal hours per week.

This table shows rates and hours worked during the week ending 15 March 2020. Deductions are set out after the table.

Employee Marital status

Dependants Hours worked

Normal time rate

Overtime rate

caitlin DIKO Single None 54 R50 R75

Mary KOLI Married 3 49 R60 R90

RememberIn the case where there is only one more decimal than the decimal to which you are rounding of, the general rules for rounding off are the following:

When the decimal after the decimal to which you are rounding off equals 5 or more, you round up, not down.

For example, rounding R41.075 off to the nearest cent gives R41.08.

When the decimal after the decimal to which you are rounding off is less than 5, you round down.

For example, rounding R41.074 off to the nearest cent gives R41.07.

However, R41.0745 will be rounded off to R41.08. Why?


153 Unit 5: Salary advice and Salaries Journal

Mo

du

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Deductions: ■ PAYE: 18% of taxable income ■ Medical aid: R100 per week for single member, R150 per week for 2 adult members,

R50 per under age dependant per week. The employer contributes R1.50 for every R1 contributed by the employee towards medical aid.

■ Pension Fund: 7.5% of the normal wage of employees. The employer contributes R2 for every R1 contributed by the employee.

■ UIF: Amounts as prescribed by RSA legislation. ■ Staff Association: R10 per week per employee.



LEARNING OUTCOMES

■ Record appropriate accounting entries regarding the wages and Salaries Journal in the Cash Payments Journal (CPJ)

IntroductionThe CPJ is used for recording both Wages Journal payments and Salaries Journal payments. We include examples of the CPJ for wage and salary transactions together with some pointers to important accounting details. Your facilitator or lecturer will guide you further.

6.1 Recording different wage transactions in the CPJ

Every week one cash cheque (see amounts in red) is issued to pay the net wages to employees. This is cashed at the Bank and the money is placed in different wage envelopes according to what is due to each employee.

Unit 6: Recording wage and salary transactions in the CPJ


155 Unit 6: Recording wage and salary transactions in the CPJ

Mo

du

le 7

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R500

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R188

R650

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R282

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B16

B17

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B19

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R282

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N15

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In these four Wages Journals, all entries are the same each week. In real life, every week will be different, due to illness, different workloads, and so on.

The weekly net wage cheques and the monthly employee deductions and employer contributions will be recorded in the CPJ.

CASH PAYMENTS JOURNAL OF CHICKEN RANCH FOR FEBRUARY 2020 CPJ2

Doc. Day

Name of Payee / Beneficiary Fol. Bank

Creditors for wages Purchases

Creditors control

Sundry Accounts

Amount Fol. Details

100 7 Cash R2 080 R2 080

120 14 Cash R2 080 R2 080

140 21 Cash R2 080 R2 080

160 28 Cash R2 080 R2 080

180 Pension Fund R1 880 R1 880 B16 Pension Fund

181 Medical Fund R7 800 R7 800 B17 Medical Fund

182 SARS R1 960 R1 960 B18 SARS

183 UIF R224 R224 B19 UIF

184 Union Fees R80 R80 B20 Union Fees

R20 264 R8 320 – – R11 944

B3 B15

The weekly net wage (red) is entered in the new Creditors for Wages column in the CPJ.At the end of the month, the employee deductions and employer contributions are paid over to the different

funds. These amounts are entered in the Sundry column in the CPJ (see amounts in green).

The total monthly amount for Pension Fund:

Week 1 R188 + R282Week 2 R188 + R282Week 3 R188 + R282Week 4 R188 + R282

= R1 880

The total monthly amount for Medical Fund:

Week 1 R650 + R1 300Week 2 R650 + R1 300Week 3 R650 + R1 300Week 4 R650 + R1 300

= R7 880

Now calculate the total monthly amounts for PAYE (SARS), UIF and Union Fees.

Do you agree with the Pension Fund and Medical Fund amounts?

CASH PAYMENTS JOURNAL OF CHICKEN RANCH FOR FEBRUARY 2020

Doc. DayName of Payee / Beneficiary Fol. Bank

Creditors for wages

100 7 P Khumalo R1 006 R1 006

101 J Mtuli R1 074 R1 074

120 14 P Khumalo R1 006 R1 006

121 J Mtuli R1 074 R1 074

140 21 P Khumalo R1 006 R1 006

141 J Mtuli R1 074 R1 074

160 28 P Khumalo R1 006 R1 006

161 J Mtuli R1 074 R1 074

RememberMany entities no longer use a cheque system to pay weekly wages, but do electronic funds transfers.

Instead of recording a cash entry in the CPJ under Payee, they will then record the names of the employees in the Name of Payee / Beneficiary column.

R2 080


157 Unit 6: Recording wage and salary transactions in the CPJ

Mo

du

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6.2 Recording different salary transactions in the CPJH

ere

is t

he S

alar

ies

Jour

nal o

f a

stat

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hop.

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Loo

k at

the

UIF

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■

For

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the

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s th

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■

For

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s th

is c

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t: G

o ba

ck t

o w

hat

you

have

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nt a

bout

UIF

ded

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ons

earl

ier

in t

his

mod

ule.

CA

SH P

AY

MEN

TS J

OU

RN

AL

OF

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MPU

S ST

ATI

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ERS

FOR

TH

E M

ON

TH E

ND

ED 3

1 JA

NU

ARY

202

0 CPJ

1

Doc

.D

ayN

ame

of P

ayee

/ Be

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iary

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Bank

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itor

s fo

r w

ages

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ors

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ry A

ccou

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Am

ount

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ails

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Fund

4 87

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Fund

183

Med

ical F

und

7 50

07

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Med

ical F

und

184

SARS

1 70

01

700

B18

SARS

185

UIF

498

498

B19

UIF

186

Staf

f Ass

ocia

tion

100

100

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f Ass

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tion

33 6

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––

14 6

73

B3B1

5

The

acc

ount

nam

e “C

redi

tors

for

wag

es”

refe

rs t

o th

e ne

t sa

lari

es o

f th

e em

ploy

ees.

C

alcu

late

the

tot

al m

onth

ly a

mou

nts

for

Pen

sion

Fun

d, M

edic

al F

und,

PA

YE

(S

AR

S),

UIF

and

Sta

ff A

ssoc

iati

on.

Do

you

agre

e w

ith

the

tota

l mon

thly

am

ount

s as

giv

en in

the

CP

J?



IntroductionWe have discussed posting to the Ledgers in Module 5. Posting means to record certain amounts in General Ledger accounts. You will be introduced to a few new Ledger accounts relating to wages and salaries.

7.1 From the Wages Journal to the LedgerHere is an example of a completed Wages Journal. We will use it to illustrate certain concepts and processes.

Unit 7: Posting wage and salary transactions to Ledger accounts (enrichment)


Employees

Normal time Overtime Gross wagesTariff Hours Amount Tariff Hours Amount

Mr P Hina 32 45 1 440 48 5 240 1 680

Mr P Dubula 40 43 1 720 60 3 180 1 900

3 160 420 3 580


Employees’ deductions NetWages



108 400 236 14 10 768 912 162 800 14 976

129 300 266 17 10 722 1 178 194 600 17 811

237 700 502 31 20 1 490 2 090 356 1 400 31 1 787

7.1.1 Wage and salary liabilitiesThe deductions of employees are liabilities to the business as the business owes these monies of the employees to various institutions. These monies do not belong to the business. When the applicable liabilities accounts increase at the ned of each week, they are always credited. There are five of these liability accounts:

■ Pension Fund ■ Medical Aid ■ SARS (PAYE) ■ Unemployment Insurance Fund ■ Staff Association


159 Unit 7: Posting wage and salary transactions to Ledger accounts (enrichment)

Mo

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WORKED EXAMPLE Posting from a Wages Journal

We use different colours to indicate the entries in the sections of the Wages Journal above and to follow the posting process.Step 1 Post from the Deductions section and Net Wages column

Wages Journal

Name

Employee deductions NetWagesPension Medical PAYE UIF Union Total

Mr P Hina 108 400 236 14 10 768 912

Mr P Dubula 129 300 266 17 10 722 1 178

237 700 502 31 20 1 490 2 090

Balance sheet accountsGeneral Ledger

Dr Pension Fund (B20) Cr

Date Details Fol. Amount Date Details Fol. Amount

2020 Mar 7 Wages 237

Dr Medical Aid (B21) Cr



Dr SARS (B22) Cr



Dr Unemployment Insurance Fund (B23) Cr


2020 Mar 7 Wages 31

Dr Staff Association (B24) Cr


2020 Mar 7 Wages 20

Dr Creditors Wages (B25) Cr


2020 Mar 7 Wages 2 090

A new account Creditor wages or Creditors for wages is used to record the total of the net wages.



The employer contributions (Expenses) must also be paid into the required liability accounts, since these amounts will later also be paid over to the various institutions.

At the end of the month both employee deductions and employer contributions will be paid over, usually by means of electronic payments.

Step 2 Post from the Employer Contributions section to the Liabilities accounts.

Name


Pension Medical UIF Total

Mr P Hina 162 800 14 976

Mr P Dubula 194 600 17 811

356 1 400 31 1 787




Pension fund contribution 356




Medical aid contribution 1 400



2020 Mar 7 Wages 31

Unemployment Insurance Fund contribution 31



Mo

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Step 3 Post from the Employer Contributions section to the Expenses accounts

The three different contributions of employers are all business expenses. This means that these accounts must be debited with their amounts at the end of each week.

The three Expenses accounts are: ■ Pension Fund Contribution ■ Medical Aid Contribution ■ Unemployment Insurance Fund Contribution

Name


Pension Medical UIF Total

Mr P Hina 162 800 14 976

Mr P Dubula 194 600 17 811

356 1 400 31 1 787

Nominal Accounts Section

Dr Wages (N20) Cr


2020 Mar 7 Gross wages 3 580

Dr Pension Fund Contribution (N21) Cr


2020 Mar 7 Pension fund 356

Dr Medical Aid Contribution (N22) Cr


2020 Mar 7 Medical aid 1 400

Dr Unemployment Insurance Fund Contribution (N23) Cr


2020 Mar 7

Unemployment Insurance Fund 31

RememberThe posting of employer contributions is actually a double transaction:• posting of employer

contributions to the respective funds accounts (Step 2)

• posting of employer contributions to the respective expense accounts (Step 3)



Step 4 Post from Gross WagesThe weekly total of the gross wages must be posted to the wages account. Wages is an ordinary Expenses account. This account must be debited.


Employees

Normal time Overtime Gross wagesTariff Hours Amount Tariff Hours Amount

Mr P Hina 32 45 1 440 48 5 240 1 680

Mr P Dubula 40 43 1 720 60 3 180 1 900

3 160 420 3 580


Dr Wages (N20) Cr



7.1.2 Results of posting processWe have shown you the different posting entries relating to the Wages Journal (entries of only one week of the month).

Do you agree that the end result of the posting process from the Wages Journal to the Ledger accounts will be as follows?

Balance sheet accountsGeneral Ledger








Medical aid contribution 1 400

Dr SARS (B22) Cr





Mo

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2020 Mar 7 Wages 31

Unemployment Insurance Fund contribution 31

Dr Staff Association (B24) Cr


2020 Mar 7 Wages 20

Dr Creditors Wages (B25) Cr


2020 Mar 7 Wages 2 090


Dr Wages (N20) Cr



Dr Pension Fund Contribution (N21) Cr


2020 Mar 7 Pension fund 356

Dr Medical Aid Contribution (N22) Cr


2020 Mar 7 Medical aid 1 400

Dr Unemployment Insurance Fund Contribution (N23) Cr


2020 Mar 7

Unemployment Insurance Fund 31



Unit 8: Month-end procedures for some accounts (enrichment)

8.1 Month-end procedures for some accounts

WORKED EXAMPLE Wages of Mr Hina and Mr Dubula revisited

At the end of the month, the Pension Fund account will look as follows (assuming employees worked the same number of hours every week). The wage entries for the week ended on 15 March are in colour:



2020 Mar 31 Bank CPJ3 2 372



15 Wages 237


22 Wages 237


29 Wages 237


2 372 2 372

■ Entries for four weeks are recorded. ■ At the end of the month these monies (R2 372) will be paid over to the Pension Fund. ■ The payment will be recorded in the CPJ. The double entry is: Debit the Pension Fund and credit the Bank

(Assets decrease). ■ The account for that month will now be closed off and the totals are indicated.


165 Unit 8: Month-end procedures for some accounts (enrichment)

Mo

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At the end of the month, the SARS (PAYE) account will look as follows:

Dr SARS (B22) Cr


2020 Mar 31 Bank CPJ3 2 008


15 Wages 502

22 Wages 502

29 Wages 502

2 008 2 008

Entries for four weeks are recorded. ■ At the end of the month these monies (R2 008) will be paid over to SARS. ■ The payment will be recorded in the CPJ. The double entry is: Debit the SARS (PAYE) account and credit the Bank

(Assets decrease) ■ The account for that month will now be closed off and the totals are indicated. ■ The same will happen with the Medical Aid (B21), Unemployment Insurance Fund (B23) and Staff Association (B24)

accounts.

Exam preparationExpect to see a question regarding wages or salaries in every DHET exam paper.

Module summary■ We have discussed and given activities on two types of wage systems,

overtime remuneration, as well as various employee deductions and employer contributions.

■ We have also covered compiling the weekly Wages Journal and the monthly Salaries Journal.

■ Lastly, we recorded wage and salary transactions in the monthly Cash Payments Journal.


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