![]() However, you must reverse your accrued entries when your next accounting period begins.Īn accrued payroll entry may look like this: This type of payroll journaling is simpler than initial recording. When creating accrued payroll journal entries, group all of your wages in one row and your payroll taxes in another. Therefore, you’ll need to create an accrued payroll entry. That’s because, in some cases, you’ll still have wages to pay after an accounting period closes. ![]() Accrued payroll entryĭespite how comprehensive it appears, your initial payroll entry may not cover all of your wages. In payroll journaling, you withhold payroll taxes earlier than you file and pay your payroll taxes. After this, the relevant sections of your payroll journal entry will appear similar to this table: When you pay each tax, you must debit the individual tax and credit your payroll account with the corresponding amount. Note that payroll taxes are unique in payroll journaling because you withhold them earlier than you pay them. Your initial recording payroll entry should look like this table: You should then record each individual benefit amount in its own row as a credit. If you withhold other payroll deductions, such as benefits plan premiums or wage garnishments, you’ll need to record these values in your initial payroll entry. Such taxes could include federal and state income taxes, FUTA (federal unemployment tax), SUTA (state unemployment tax) and FICA (Social Security and Medicare). In construction, for example, direct labor often comprises wages paid for open jobs, whereas wages comprise other employees’ pay overhead.įor your payroll taxes debit, you’ll record credits for each type of tax you withhold. In many cases, wages and direct labor are the same, but they may differ in some industries. The equal - and opposite - transactions for the first two of these three categories are liability general ledger account credits. Initial recordings display debits for your wages, direct labor expenses and payroll taxes. Initial recordings are the most detailed type of payroll entry. These are the three main types of payroll journal entries: 1. When you pay your employees, you should debit your expense accounts and credit your liability accounts. (A liability is any economic burden.) That’s because as your expenses increase, your cash amount decreases. However, you would also credit your liability accounts. ![]() When paying employees, for instance, you would debit your expense accounts because you lose cash. Let’s look at a simplified example to understand how this equation factors into journal entries. This might be a longer version of this equation:Īssets + Gains + Revenues = Liabilities + Equities + Expenses + Losses The double-entry accounting method underlying payroll journal entries can be represented with this mathematical equation: In this method, when your company earns money in one account (credit), it loses money in another (debit). Each payroll journal entry is paired with another entry of an equivalent and opposite amount, as payroll journals heed the double-entry accounting method. Payroll journal entries are the numbers you record in your small business’s general ledger to track employees’ wages. Proper payroll accounting also balances your general ledger so you can be more confident in your financial statements’ accuracy.Įditor’s note: Looking for the right online payroll software for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs. It’s integral to ensuring your employees are paid in full and on time, and it keeps you out of hot water with the IRS. Payroll accounting is the process of tracking all of the money you spend on wages and payroll taxes. Let’s look at the types of payroll journal entries, how to record them and the best payroll software to streamline the process. While the process may look different for every company, payroll ledgers can include employee compensation, benefits, taxes and deductions. Payroll journal entries record your workers’ pay alongside overall business expenses. One method accountants use is a payroll journal entry. Keeping track of company spending is essential for staying on top of your financial records.
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