In this article, we cover one of the basic steps of payroll accounting—the payroll journal entry. In this article, we’re going to be discovering how to master this fundamental step of payroll accounting by learning about how to prepare and record payroll journal entries. Payroll software integrates with accounting software to record your payroll accrual with one massive journal entry. Say you wanted to see how much you spent on employee payroll last year, as opposed to the year before. All the wages you’d be looking at are payroll expenses (i.e., wages that you have already paid). Recall our previous example of employees getting paid on January 17, from work they did January 2-15.
There are four salaried employees in the Selling & Administrative Department with combined salaries of $9,000 per pay period. To do so, you’ll need to calculate your accrued wages (or wage accruals), which are the total wages you owe but haven’t paid yet. You will record this calculation using an accrued wages entry, which increases the liability account. Payroll journal entries should be added to your general ledger each time you process payroll. If you handle your own bookkeeping, it’s important to understand how to record a payroll entry to track this major expense. So if you want to learn how to count those outgoing dollars, you’re in the right place.
Popular Double Entry Bookkeeping Examples
So, keeping track of accrued salary as part of accrued payroll is critical. Payroll taxes are taxes levied on employees and/or employers which must be deducted by the employer at the time of processing of payroll. In US, major payroll taxes include accrued payroll income taxes, FICA taxes (social security tax and Medicare tax), FUTA tax and SUTA, etc. 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.
At RL Good Candy, I’d accrue 10% of an employee’s wages for PTO (8 hours PTO earned / 80 hours worked in two weeks). For an employee paid $2,000 every two weeks, the PTO accrual is $200 ($2,000 bi-weekly paycheck ✕ 10%). Bonuses may be taxed the same as regular wages when paid with a regularly scheduled payroll run.
Accrued Income Tax Journal Entry
Set aside copies of this information in order to include it in the next payroll. When you’re managing a business ledger, paying attention to detail and double-checking your work is important. After all, it’s the tool you use to track your money, and you want to keep it accurate.
This step may be addressed automatically by your payroll software. Summarize the payroll information just collected and have supervisors verify that employees have correctly recorded their time. Much of this activity can be automated when a computerized timeclock is used. Have new employees fill out payroll-specific information as part of the hiring process, such as the W-4 form and medical insurance forms that may require payroll deductions.
Example 2: Calculating Salary Accrual for a Salaried Employee
She has also worked in desktop support and network management. We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, https://www.bookstime.com/ accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. The retailer will accomplish this by preparing an accrual adjusting entry dated as of December 31.
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. Keeping track of payroll entries, credits, and debits for every employee in your organization as well as the many other expenses you face leaves room for error. If something goes wrong, adjusting entries can become a huge chore—you’ll have to dig through potentially hundreds of records.
