Companies can keep track of employee salaries using a payroll journal entry. You can make sure that your payroll is as accurate as possible if you know how to create a payroll journal entry correctly. In this article, we will not only talk about payroll journal entry in Quickbooks, what it is, and their examples but also what accrued payroll journal entry is all about.
Payroll Journal Entry
The salary or other remuneration that employers give to their employees is documented in a payroll journal entry. Payroll journal entries are used by an accountant to record these transactions in the company’s general ledger and to track payroll costs. A business may take this action to ensure that its financial statements are error-free. Debits and credits are included in each journal entry, and they must balance one another.
How to Prepare a Payroll Journal Entry
The five steps to preparing payroll journal entries are as follows:
#1. Establish Payroll Accounts
Create your payroll accounts first. These can be included in your chart of accounts, a list of all of your financial accounts that is organized. Your payroll accounts contain lists of liabilities and expenses for tracking and managing your payments and transfers.
Having a separate account for payroll is advantageous. Depending on your employer, you might have more payroll accounts. Typical payroll accounts you might have include:
- Payable salaries
- Vacation expense
- Payable federal income tax
- Payable state income tax
- Total labor cost
#2. Determine Tax and Deduction Amounts
You may now calculate your taxes and deductions in order to determine how much should be deducted from employee wages. All employees must complete tax papers like the W-4 and I-9 in order to accomplish this. These documents detail the amount that must be withheld from each pay period.
#3. Display Your Payroll Costs
The next step is to gather and enter any payroll expenses your business has in your accounting records. Payroll expenses can include any payment made by your business during an accounting period, such as wages, salaries, or benefits. You must boost your expenditure account because payroll costs are paid. Your debits must increase in tandem with your expenses. which indicates that you may also debit your payroll bills.
#4. Post Your Obligations
You can publish your payables once you’ve recorded your payroll expenses. Liabilities are something you owe but haven’t yet paid for, such as debts. Your credit should rise in line with your rising liabilities.
#5. Review and Update Your Records
Once you’ve entered all of your expenses and payables, double-check your records to make sure nothing is missing and that everything is accurate. By comparing your entries with the amounts on your payroll reports, you can identify any mistakes and fix them. Verify that your debits and credits are equivalent throughout this phase. Go through your accounting records to find and correct any errors if they’re out of balance.
Types of a Payroll Journal Entry
The three main categories of journal entries are as follows:
- Initial recordings – The main entries in payroll accounting are initial recordings. They are the first entries in a ledger that show a transaction and include an employee’s gross wages as well as any deductions made from those wages.
- Accrued Wages – that have not yet been paid by the employer to the employee. When the company pays the wages, an accountant records these at the conclusion of the accounting period and updates the ledger entries to reflect the payment.
- Manual Payments – payments made manually by the employer, such as checks or cash. This typically happens when a corporation needs to change a worker’s wage or when a worker is let go.
Tips for Payroll Journal Entry
Here are a few tips for entering payroll journal entries:
- Applicable accounting software: Although you can manually publish your payroll entries, accounting software may be beneficial to purchase. Due to the digital nature of payroll accounting, accounting software may assist in making it simpler by storing, organizing, and tracking your data as well as performing calculations for you.
- Create a spreadsheet: Even if you manage your payroll journal entries using computer software, think about additionally keeping a separate spreadsheet for them. You can use this to keep all of your entries in one place and to refer to if you spot an error in your general ledger.
- Publish your tax forms: For your employees’ tax forms, you might want to consider a method of organization. Since their tax forms are necessary for creating payroll journal entries, it is advantageous to organize them so that you can quickly locate a particular tax form when you need to determine an employee’s payroll deductions.
Payroll Journal Entry Examples
In this portion of the small business accounting payroll guide, we’ll use a hypothetical corporation to illustrate payroll journal entry examples for recording gross wages, payroll withholding, and associated payroll costs.
Payroll transactions can be used in both a manual accounting system and accounting software like QuickBooks because they are posted to the general ledger. (To submit a payroll entry in QuickBooks, simply click “Company” and then select “Make General Journal Entries”).
#1 – Wage, Payroll, and Insurance Journal Entry
Date
Account Names
Debit
Credit
3/1
Wage Expense
720.00
FICA Taxes Payable (7.65% x 720)
55.08
Federal Income Tax Payable
58.00
State Income Tax Payable
21.00
Health Insurance Payable
50.00
Wages Payable
535.92
The following entry would be made after ABC Company issued Mary’s payroll check for the most recent accounting period in order to decrease (debit) the balance of the Wage Payable account and the payroll tax account and decrease (credit) cash. (In accounting programs like QuickBooks, you’ll credit the bank account that serves as the source of your employee’s payment.)
#2. Salary Payable for Payroll Journal Entry
3/1
Wage Payable
535.92
Cash
535.92
The payroll liability expenses incurred by ABC Company must be reported in addition to the gross pay and withholding in the preceding payroll journal entries.
The total of these costs includes the ABC Company’s share of Mary’s FICA, as well as the expected costs of worker’s compensation insurance, unemployment tax, and the ABC Company’s share of Mary’s health insurance.
#3. Payroll Journal Entry Payroll Taxes
3/1
ABC CO FICA Expense
55.08
Unemployment Tax Expenses
3.00
Workers’ Comp Insurance Expense
20.00
Health Insurance Expense
50.00
ABC Co FICA Payable
55.08
Unemployment Tax Payable
3.00
Workers Comp Insurance Payable
20.00
Health Insurance Payable
50.00
You would simply debit the payable accounts you are paying and credit cash when it is time to pay the payroll due, such as FICA and Federal Income Tax Payable.
I hope the preceding Payroll Journal Entry Examples were clear.
Accrued Payroll Journal Entry
All forms of accumulated compensation due to employees that have not yet been paid to them are included in the accrued payroll journal entry. The accrual basis of accounting uses the idea of payroll, which is the employer’s liability since it contains the financial commitments an organization has to its employees, such as:
- Salaries
- Wages
- Commissions
- Bonuses
- Taxes on wages
- Unpaid time off
- Contributions
- Deductions
Regardless of whether businesses have made any cash payments on any owing wages and salaries, accrued payroll journal entry are recorded as operating expenses on the income statement in the period in which they are incurred.
Payroll Journal Entry in Quickbooks
An example of how to properly record wages, employer tax expenses, net checks, and other transactions connected to payrolls that are generated outside of the QuickBooks payroll program by uploading your payroll journal entry in QuickBooks
- A general journal entry is the most common technique for observing payroll journal entries in QuickBooks. To make this process more efficient, create a “Memorized Transaction” first in QuickBooks. This article will walk you through the process of making a straightforward payroll-memorized transaction.
Then, use the memorized transaction you just made by following this step-by-step guide to enter a payroll.
- Custom Import Document
Receiving a personalized GL Report is an option available to all payroll clients.
The IIF file is directly mirrored or matched with their chart of accounts. Direct import of this unique file into QuickBooks is possible. Please send your account manager a sample journal entry and/or a copy of your chart of accounts to get things going.
What Type of Journal Is a Payroll Journal?
The general journal is a type of journal that includes a payroll journal, which is categorized under the payroll account.
How Do I Record Employee Payroll Deductions?
Any employee payroll deductions will be recorded in the journal entry:
- Debit “Wages Expense.” For the entire sum that the business must pay for the pay period.
- Credit “Net Payroll Payable” as well as any necessary deductions. The entire number of credits is added after the complete list of debits is added.
Read Also: Employer of Record: Meaning, Services, Benefits & Difference
What Is Included in Payroll Journal?
Things included in a payroll journal:
- Employee compensation.
- Employer benefits.
- Employer taxes.
- Payroll taxes.
- Employee deductions.
- Any other deductions.
What Type of Expense Is Payroll?
Payroll expense is the cost of paying employees’ salaries and wages in return for the services they provide to a company,
Conclusion
While learning how to write payroll journal entries is undoubtedly worthwhile, if you have more than five employees, the cost-benefit analysis starts to change. Good payroll software will let you concentrate on other duties while handling the grunt work of writing a payroll journal entry.
A crucial aspect of business accounting is the payroll journal entry part. Utilizing top-notch payroll software will greatly ease the procedure. The system will compute your gross salary and tax obligations automatically. On your behalf, it will create a payroll journal entry that you can submit at tax time.
To further understand how payroll journal entry works, you might review the examples again.
Payroll Journal Entry FAQs
What Is the Payroll Journal?
A payroll journal is a specific type of accounting journal that includes data regarding the human resources part of the company.
Is Payroll a Debit or Credit?
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