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General theory on accounting for payroll and salary deductions.doc

Thesis for accounting speciality Do Kieu Oanh-7a03
1. Concept, features and the useful of accounting for payroll and salary
1.1. Concept on salary
Money is not means of exchange but it is also means of measuring the
value of men’s labour. In economic theory, ‘labor’ is any work undertaken in
return for a fix payment.’Payroll’ is the amount of the money the labor get in
return 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.To
caculate the niminal wage accurately it is necessary to base on real wage
through the change of price on the market. This is very important because it
relates to the salary unit price. Besides, the wage to ensure re-produce
working ability also be accounted for production cost as an compulsory cost
under the rule of Government State, it includes these types:
1.2. Salary deductions
Along with salary, wage, allowances counted for entrprise’s production

costs are:
1.2.1.Social insurance fund
This fund establisted as a source of capital, aids to the staff in these
situations: 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.912
CP/BHXH dated 07/11/2005 stipulates Social insurance regime, this fund is
built by deducting 20% from the payroll fund and daily allowances of the
labor in the fiscal year, in there 15% which the hirer paid is counted for
production cost of the company and 5% is deducted directly from employees’
Social insurance fund is managed by the Ministry of Labour, War Invalids
and 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 makes
social insurance voucher pay for labor follow the form No.03-LTDL
,accounting voucher regulation).At the end of the month or the quarter the
company must to strike a balance to the organization manages social
insurance fund.
1.2.2.Health insurance fund
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
Health insurance is the medical aid to the persons who pay in advance for
it , help them with one part of the costs for hospital fees, medical examination,
medicines,…Health insurance fund forwards to establish a public health care
network. Only persons who take part in this fund will receive health
insurance. According to the current rule of the financial system health
insurance is deducted 3% on the basic payroll fund, in there, 2% is counted
for production cost, the rest 1% is deducted from labor’s income.
Health insurance fund is delivered to the authorized association under the
form of buying health insurance in order to serve and care staff’s health such
as: medicine examination, hospital fees…during the time they get ill, give
1.2.3.Trade union fee
Trade union fee is spent for union activities, this fund is established with
a specific rate count on the real payroll fund appear in particular month and
counted for production cost.Trade union fee is deducted 2%, in there, one part

is sent to the top management of company, the rest is remained to spend for
enterprise’s activitives
Deductions from salaries as social insurance, health insurance, trade
union fees along with employees payable form labor cost in the overheads
factory costs. Managing caculation, deduction, spending and using of these
funds not only important to the overheads factory costs management but
ensures 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, it
is managed and used directly by the company according to the labor quantity
and the labor quality, it includes these items:
* Salary by hour
* Salary by products
* Salary pay for the labor gets off because of objective causes, appointed
to another post, on leave, go on recruite follow the regular system
* Regular salary
* Allowances for over-time working, extra-shift, work at night…
* Function allowances
Income of the employees includes salary and other payable (regularly
called salary and bonus). Salary and bonus in the company at present follow
the Decree No.118 dated on September 15
,2005 and circular letter on the
same day signed by Prime minister about correct social insurance policy.
Follow that, the Government State manages state-owned enterprise’s salary
fund by defining by regulations limit of paying salary, regularly called salary
unit price
There are three types of defining salary unit price as follow:
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
<> Salary unit price caculated bases on unit of product (or convert
product), defined bases on factors such as coeffictient and salary grade limit,
product norm, time norm, work norm of the clerk and allowances which
follow the rule of Government State.
<> Salary unit price caculated bases on profit in plan. This method is
applied in the multiple manufacturing company with detail labor norm,
therefore it is difficult to define employees payable in the total costs, the
method is caculated as follow:
Total labor x Average salary
Salary unit price =
Total profit
<> Salary unit price caculated on turnover:
Total labor x Aaverage salary
Salary unit price =
Total profit
2.2. Salary system:
2.2.1. Salary by product
This is the type of paying salary based upon on the working hours of the
labor, hierarchy (title) and salary grade (salary ceefictient). This form mainly
applied with indirect labor, stayble job or with direct labor without product
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 pay
the 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
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
Hour wage with bonus included
Substantially, this is the combination between Simlpe hour wage form
with frequantly bonus form the payroll fund. The amount of bonus depends
on the amonunt of finished work. Therefore, this type is more motivate,
encourages employees than other ones . Though, this type not yet show the
fact 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, amount
of 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 which can
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 salary
it 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 to
each of the worker in the unit or group bases on basic salary and the real time
each one at work. The formula to caculate as follow:

Li = x Ti Ki
∑ Ti x Ki

In there:
-Li: salary payable to worker i
-Lt: salary payable to the unit
-Ti: real time at work of the worker i
-Ki: is the work grade of the worker i
- 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 a
group his salary will be paid by the mode salary payable to group
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
- 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+
In 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 of
progressive product which based on the rate of exceeding the set standard
2.2.3. Some other types of salary
Beside the above modes, depends on the scale, conditions and features of
the business organization then enterprise can applied these type of paying
- Salary pay for the final result
- Salary by salary group fund
- Salary pay by amplitude of set by standard
1. Content of payroll accounting
1.1 .Vouchers in use
Form 01- LDTL- Time sheet
Form 02- LDTL- Payroll
Form 03- LDTL- Leaves paid by social insurance
Form 04- LDTL- Social insurance payment voucher
Form 05- LDTL- Bonuses payment voucher
Form 06- LDTL- Certification of performance
Form 07- LDTL- Overtime record
Form 08- LDTL- Piece-work engagement contract
Form 09- LDTL- Accident investigation report
1.2. Accounts in use
This account records salaries, wages, social insurance and other payables
that are due to the employee, as well as the payment of these liabilities.
1.3. Methods of payroll accounting
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Thesis for accounting speciality Do Kieu Oanh-7a03
- Record salaries, wages, bonuses, social insurance and other amounts
which have been paid or advanced to the employees
- To record deductions of salaries and wages from the employees salary.
To record amounts payable to employees such as salaries, wages, bonus
and 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 paid
to employees was greater than what was payable.This account should be kept
tract of under two headings: salaries payable and other payables.
Major transactions:
1. To record salaries, wages, and other allowances which are payable to
Dr.241- Construction in progress
Dr.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.334- Payable to employees
3. To record social insurance which must be paid to to the employees such
as sick leave,pregnancy leave etc
Dr.338- Other payable
Cr.334- Payable to employees
4. To record annual leave which mist be paid to the employees
Dr.627,641,642, or
Dr.335- Accrured expenses payable
Cr.334- Payable to employees
5. To record deductions from salaries and employees income such as
advances, health insurance, indemnity, etc
Dr.334- payable to employees
Cr.141- Advances,or
Cr.338- Other payable
Cr.138 - Other receivable
6. To record the personal income taxes which must be paid to the state
Dr.334- Payable to employees
Cr.333- Taxes and other payable to the state budget
7. To record the payment to the employee
Dr.334- Payable to employees
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Thesis for accounting speciality Do Kieu Oanh-7a03
Cr.111- Cash on hand
Cr.112- Cash in bank
2. Contents of salary deductions accounting
2.1 . Vouchers in use
Form 01- LDTL- Time-sheet
Form 02- LDTL- Payroll
Form 03- LDTL- Social insurance leave slip
Form 04- LDTL- Social insurance payment sheet
Form 05- LDTL- Bonus payment sheet
Form 06- LDTL- Confirmation of finished products or work
Form 07-LDTL- Over time record
Form 08-LDTL- Lump-sum work contract
Form 09- LDTL- Record of working accident examination
2.2. Accounts in use
This account is used to record the changes in other payable (which are not
included in account 331 to 336)
Content and scope of this account involes the following major transactions:
1. The value of asset surplus for which the reason has not been
determinded and the company is awaiting the authorities decision.
2. The value of asset surplus payable to individuals or entities (internal and
external) according to the authorities decision.
3. The recognition and payment for social insurance, health insurance and
trade 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 the
import, export business in order to pay export tax, import tax, duties, turnover
tax etc.
9. Other amount payable or receivable.
2.3. Method of accounting for salary deductions
- Amount of social insurance which has been paid to an employee.
- Trade union fees which have been paid by the entity.
- Social insurance, health insuranse, and trade union fees which have been
remitted to the authorities.
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
- Recognise social insurance, health insurance and trade union fees as
business expenses of the current period.
- Health insurance withheld from employees’ salary.
- Injection from funds to cover over payment of social insurance and trade
fees .
Credit balance
- Amount of social insurance, health insurance and trade union fees that are
This account may have a debit balance when the amount paid to the
authorities exceeds the obligation or the company has overpaid social
insurance and trade union fees and the over payment has not been reimbursed.
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 union
Dr.241-Construction in progress
Dr.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 authorities
Dr.338-Opther payable
Cr.111-Cash on hand
Cr.112-Cash in bank
- Caculate social insurance payable to employees
Dr.338-Other payable (3382,3383)
Cr.334-Payable to employees
- To record spending out of the company’s social insurance and trade union
Dr.338-Other payable(3382,3383)
Cr.111-Cash on hand
Cr112-cash in bank
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Thesis for accounting speciality Do Kieu Oanh-7a03
- To record a refund due to excessive payments made for social insurance and
trade union fund which have been returned
Dr.111-Cash on hand
Dr.112-Cash in bank
Cr.338-Other payable (3382,3383)
1. The formation and the development of the company
* NAME: Song Hong construction development and import-export company
, 164 Lo Duc str, Hai Ba Trung dist, Ha Noi city
* HEADQUARTERS: Song Hong construction corporation
* FORM OF BUSINESS ORGANIZATION : stated-owned enterprise
* SCOPE OF ACTIVITIES: construction and import-export
* STAFF: 210, in there, officers: 30
Song Hong construction development and import-export company is state-
owned enterprise, at the beginning it was a branch of construction and import-
export company under Song Hong construction corporation. SHODEX at the
time was a wholesaler, specialized in selling: aluminum, concrete, enameled
tile, … for Song Hong Construction Corporation. The company did business
mainly with Song Hong Aluminum joint-stock company, construction
materials and concrete industry company.
From the year 2001-2002, catching up with the national development and
market demands the company officially expanded into the construction
business. 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 through
figures on the table below:
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
SHODEX business activity goals in 2003-2004-2005
Type of currency :VND
No Indicators 2003 2004 2005
Revenue from
Pretax income
Source of capital
Payroll fund
Average wage
per man



(Source: Accounting Department)
According to SHODEX’s business activity goals, turnover of the
company in the year 2003-2004-2005 has increased highly and steadily. Other
figures such as pretax income , payroll fund … have gone up. These
achievements have resulted from Board of management’s role in improving
its management system as modernly and plainly, meets the company’s
requirements and suits to current business activities.
SHODEX’s main activities in fields such as civil, industry, transportation, investment
nd development business and import-export business. Therefore, SHODEX’s
main 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 building
and other goods
* Hotel, restaurant and tourism business and other tourism services
* Exploits ore for smelting , manufactures agriculture and forestry
* Import-export construction materials and equipment, foodstuff, other
type of goods which permitted for exploiting and manufacturing
One of the main business activities of SHOEX is executes construction
such as:trasportation, industry, civil
۩ The main features of its executing process
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
To have the construction projects well-done the company must applicate
technology in executing the projects. Each project has its own way of
executing but the technology process of SHODEX’s construction products
can 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 for
materials , 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 operating
process which planned
< > Finishing stage: This is the last step in technical process of the
construction product . This includes: building power system, water supply
system, door system, plaster, pave, cover, mastic, paint building which is in
use . Then technical department along with its technicians supervise project
and pieces of work which had already finished. After assuring construction
quality the authorized manager of the project will prepare to delivery the
building to the investor
The construction process is illustrated in the following diagram:

Some of remarkable construction projects of SHODEX are: rebuild
Quang Ninh Geology Hotel, Cien Co 1 control house, National shooting
training college, Soc Trang consultant camp, Tan De pre-stress concrete and
traffic jam, repairing New power center, Ha Noi musical institute flat-block,
Viet Ha beer company, Campuchia consultant engineer camp…
3. The main feature framework of organization
Based on business field, basic mission of construction enterprise, the
management 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 work
unit or the overall organization will pursue in the future, monitoring progress
and 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 new
market segments
Ha Noi University of Business & Management
Thesis for accounting speciality Do Kieu Oanh-7a03
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 of
organization. By organizing to receive and collect necessary information,
experting potential market and market demands then it give staff to the
manager. Researching and making solutions to archive target. Managing
materials 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, keeps
documents as archive , insect and control the implementation of the internal
- Import-export business department: with 3 members assists to the director
in making business and production plan, bringing into full play market 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 projects
is finished in time, checks liquidate with the Corporation, bank, customs,
staff. Writes down, analysises business events, balances expenditures and
incomes, makes regular reports. Organizes annual or sudden inspect follows
the top-managers’ requirements, responsible for assisting to the director in
financial 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’ schedule
making production control plan to assuring the quality and punctuality in
delivery time of product design, manages workers, security and hygienic.
Leaders of a gang of construction are responsible for reporting directly to the
Construction units are the sectors where main business events occurred
they are the bases to carry out vouchers: import vouchers, export vouchers,
daily working table…it makes foundation for accounting in liquidate
expenditures and calculates cost price
4. The main feature of the company’s business activities
The National economy is on market economy, therefore, all the enterprises
need to push up capacity, improve technology to advantage their production
and business. In the current strong competitive condition , price for bid is
lower than that before, so that, to assure incomes as well as profits
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