What is Payroll Accounting
Payroll accounting entails the recording by a business of the payment paid to its employees, including:
- workers’ total gross compensation, including salary, bonuses, and commissions
- Payroll taxes, such as federal, state, and local, are withheld from employees’ paychecks (if applicable)
- Employee payments to retirement plans, health insurance premium withholding, income garnishments, and United Way donations are just some examples of withholdings.
- Social Security, Medicare, state and federal unemployment tax contributions/expenses paid by the employer
- Fringe benefits like health and dental insurance, paid holidays, vacations, and sick days, pension and savings plan contributions, and worker compensation insurance are all examples of employer-provided benefits.
Payroll Accounting Example
Assuming employees are paid weekly based on hours worked, payroll processing takes place immediately following the workweek for companies that use this kind of payroll processing. As of the final day of each month, if the business’s accounting periods are calendar months (and calendar years), the company must accrue the pay and benefits earned by hourly-paid workers (but not yet paid or recorded in general ledger accounts).
What Are Employee Allowances (Withholding Allowances) Added To Payroll?
- In other words, a withholding allowance is a reduction in the amount of income tax withheld by the employer.
- Withholding allowances are calculated and claimed using IRS Form W-4, which may be obtained from the IRS.
- According to a taxpayer’s status as a single or married person filing separately, a married couple filing jointly, or the head of a household, the withholding amount varies.
- You’ll pay less in income tax if you claim a higher number of tax deductions.
- Whenever a person’s personal or financial status changes, a new Form W-4 must be filed.
Is Payroll A Liability Or Expense?
Journal payroll entries must be recorded accurately because the accounts to which you add or remove payroll entries determine how the accounting equation on the balance sheet affects your business’ worth. Payroll journal entries are critical. Even though paying employees is an expenditure, accumulated wages are a liability.
What Is The Journal Entry For Payroll?
Compensation given to workers is recorded in payroll journal entries. This is where the firm keeps track of the gross wages paid to employees, together with any deductions made from those salaries and any additional taxes the company owes the government.
Recording Payroll Acrrual at the end of period
Dr Payroll Expenses $1000
Cr Payroll Accrued $1000
Paying Salaries to emplyees
Dr Payroll Accrued $1000
Cr Cash or Bank $1000