If you use excellent payroll software, you can simplify the process a lot. The system will automatically calculate the tax liabilities and gross pay for you. It will generate payroll journal entries on your behalf that you can present at tax time.

One final stage in payroll accounting is to do a payroll reconciliation. A payroll reconciliation is a process you follow to ensure your payroll accounts within the general ledger accurately reflect the transactions that occurred in the payroll system. It also helps you to ensure that you are within budget throughout the year. We gave you some tips in prior steps to help check yourself along the way, but a payroll reconciliation is a more in-depth approach. The journal entry to record the hourly payroll’s wages and withholdings for the work period of December 18–24 is illustrated in Hourly Payroll Entry #1. In accordance with accrual accounting and the matching principle, the date used to record the hourly payroll is the last day of the work period. Let’s say that, for the period in question, you pay $200,000 total in wages.

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There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. To split between accounts, to the far right of the Account field, click the orange Y, complete the screen, and then click OK. Confirm with you bookkeeper or accountant that this method is appropriate for your firm to use. Have your bookkeeper or accountant confirm the 2400 Payroll Liabilities GL account is appropriate for you to use. Employer Pensions If you have more than one pension scheme, separate entries are made for each scheme.

When you pay your employees’ withholding to the respective agencies and vendors, make separate entries to record each remitted amount as a debit. Once youve recorded your expenses and payables, check your entries to ensure that nothing is missing and that everything you entered is correct. Revise any errors that you find by comparing your entries with the amounts on your payroll reports. During this step, check to ensure that your debits equal your credits. If theyre unbalanced, go through your accounting records to identify and fix any mistakes.

Payroll journal entry examples

The matching principle requires the company to report all of its December expenses on its December financial statements. This means the company must report on its income statement the hourly wages and other payroll expenses that the company incurred through December 31.

You can also select an existing Employee Name and click the Edit button to change existing information or the Delete button to delete it. The Journal Entry Transactions screen will display all the information added to the recurring transaction for the selected employee. This website is using a security service to protect itself from online attacks. The action you just performed triggered the security solution.

How to do payroll accounting: 7 steps

Most companies do it at least monthly and definitely at year-end. Similar to accrued vacation pay, you’ll also need to keep track of the amount of sick pay an employee has earned on the books. You can establish how much sick pay an employee would earn per pay period .

• This can help you organize your entries in one place, and you can refer to it if you find a mistake in your general ledger.
• Payroll journal entries are the numbers you record in your small business’s general ledger to track employees’ wages.
• Payroll journal entries help companies keep track of how much they pay their employees.
• If you need help setting up an easy procedure to enter your payroll in a way to provide you with optimal financial information, email me at
• As you can imagine, the employer’s expenses can be quite significant.
• For example, there may be deductions for 401 pension plans, health insurance, life insurance, vision insurance, and for the repayment of advances.

Other programs are geared toward new or very small businesses. Rest payroll accounting assured, a software program exists to meet your payroll needs.

The Payroll Journal Entry

While it’s certainly worth understanding how to make payroll journal entries, in reality, the cost/benefit ratio to doing the work yourself is skewed once you have more than five employees. As direct deposits are sent to employees and the IRS pulls the EFTPS payment, journal entries are made to show cash paying down the liabilities. Each journal entry has debits and credits that must add up to the same number. Accounts on the left side of the equation increase when debited and decrease when credited, and vice versa for accounts on the right side. Use these entries when you have to adjust an employee’s pay or for employee terminations. For these entries, record the gross wages your employees earn and all withholdings.

On payday, December 29, the checks will be distributed to the hourly-paid employees. Eventually, you need to https://www.bookstime.com/ pay employer taxes and remit withheld taxes. This is where a third accounting entry for payroll comes in.