Question
Tallis Engineering's payroll for January 2026:
| Item | Amount |
|---|
| Gross salaries | $120,000 |
| Income tax withheld from employees | 14,000 |
| Employees' pension contribution (5% of gross, withheld) | 6,000 |
| Employer's pension contribution (8% of gross) | 9,600 |
| Employer's payroll tax (7.5% of gross) | 9,000 |
Net pay was paid to employees on January 31. All amounts withheld, together with the employer's contributions and payroll tax, were paid to the authorities and the pension fund on February 15.
Required:
- Net Pay — the amount paid to employees on January 31.
- Journal Entries — the January 31 payroll entry, the January 31 entry for the employer's costs, and the February 15 payment. Use Salaries and Wages Expense, Employee Income Tax Payable, Pension Contributions Payable, Cash, Payroll Tax Expense, Pension Expense and Payroll Taxes Payable.
- Cost of Employment — the total cost of January's payroll to Tallis.
- Statement Impact — the combined effect of the two January 31 entries.
Statements in this challenge
- Net PayNumeric Answer
- Journal EntriesJournal Entry
- Cost of EmploymentNumeric Answer
- Statement ImpactStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 1 — accrual basis of accounting
Revenue is recognised when earned and expense when incurred, independent of cash movement. For each item ask which period the economic event belongs to, then let the balance sheet carry the difference as a receivable, payable, prepayment or unearned amount.
Common mistakes
- Recognising revenue on receipt of cash in advance rather than as a liability until earned.
- Expensing a payment that covers more than the current period without splitting off the prepaid portion.
- Leaving incurred but unbilled expenses unrecorded because no invoice has arrived.
Further readingThe 5 types of adjusting entry