What Is Payroll Accounting? How to Do Payroll Journal Entries

Check the numbers against the data you gathered from your payroll system. Does the total gross wage expense entry tie to your total payroll expense for the period? When you or your bookkeeper goes to close the books for November, $700 will need to be recorded as a credit to be paid in your accrued payroll account. When you pay the full $1,000 balance on Dec. 3, you’ll clear the balance by debiting the account for $700.

As you pay off amounts you owe, your assets (e.g., cash) decrease. To show the decrease in assets, credit the appropriate asset account, such as your Cash account. As you pay an employee, decrease your asset account to reflect the decrease in cash. The Reference field is enabled only if the Summary option is selected. Enter the reference to use for the journal entry or accept the default reference . CS Professional Suite Integrated software and services for tax and accounting professionals. Under Pay Information, choose the Expense Accounts and the Checking Account information you wish to affect when processing a recurring payroll transaction for the selected employee.

Add employer payroll taxes

The accounts that you need to set up to track payroll will generally be an expense account or a liability account. An expense is a cost that you have incurred as a result of doing business, like for wage expense and health insurance. An expense can be a liability, albeit temporarily, until it’s paid.

In this section of payroll accounting we will provide examples of the journal entries for recording the gross amount of wages, payroll withholdings, and employer costs related to payroll. This refers to anything you owe but haven’t paid for yet, such as liabilities. If the pay period ends on the actual payday — as is usually the case with salaried employees, who are generally paid current — you do not need to accrue payroll. Simply make one journal entry each to show your employees’ wages and deductions and your share of liabilities as an employer. Payroll accounting involves figuring your employees’ wages and deductions, documenting the outcome of your payroll activities and filing reports with the appropriate agencies. You record your payroll activities by making journal entries in your company’s general or payroll journal. The employer’s obligations are considered expenses on the income statement.

Unit 10: Current Liabilities and Payroll

As a small business owner, payroll accounting can be a headache. Before exploring the journal entries and financial statements, net pay is calculated, because it’s a part of the entries and statements.

The taxes payable, wages payable, and other deductions appear on the balance sheet as current liabilities. Current liabilities that relate to payroll are shown with actual numbers on the balance sheet. The other current liability accounts have xxxxxxx instead of numbers.

Import a Payroll Journal Entry

For us, the entries will be related to payroll based on the payroll information provided here. They consist of debits and credits to maintain the accounting equation. We’ll work with the four journal accounts that are appearing here.

When you pay an employee, you increase the expense account because you are paying them. For example, if a credit increases an account, you will increase the opposite account with a debit. A company may occasionally print manual https://www.bookstime.com/ paychecks to employees, either because of pay adjustments or employment terminations. When you’re done entering the debits and credits, select Save. Download the payroll entry journal from your payroll processing website.

What is Payroll Accounting?

As your liabilities increase, your credits should increase as well. Use the info from your payroll report to create the journal entry.

• This check may be paid through the corporate accounts payable bank account, rather than its payroll account, so you may need to make this entry through the accounts payable system.
• This includes Medicare and Social Security taxes, federal and state unemployment insurance and your portion of employee benefits such as health insurance and 401 matching contributions.
• The equal – and opposite – transactions for the first two of these three categories are liability general ledger account credits.
• For example, the deductions under the US laws are federal withholdings, FICA, state withholdings, employee health insurance costs, 401K, and disability taxes of state.
• Payroll accounting is the recording and tracking of all payroll transactions.

Try our payroll software in a free, no-obligation 30-day trial. Because it’s a liability, decrease your Payroll Payable account with a debit. To have individual checks appear in the GL entries, select the Detail option. Each individual payroll accounting check will appear in the Checks and Deposits tab of the Transactions window with its check number as the reference. From the Account field’s drop-down, click the correct account based on your payroll processing service.