What are the proper accounting entries for payroll?

Accountants record every financial transaction within an organisation using journal entries. Payroll accounting entries must be recorded when the employees are paid. Accountants must properly record the accounting journal entries to record payroll every time payroll is processed.

Payment of Wages

The payroll accountant journalises the accounting entry to pay employee salaries first. Using each employee's hourly rate and the hours worked in the time period, the accountant calculates the gross wages for the period. The accountant determines the amount of federal income tax, state income tax, social security tax and Medicare tax that needs to be deducted from each employee's paycheck. The accountant also calculates the amount of money each employee elects to deduct for his retirement plan contributions, insurance premiums or union dues.

After calculating the dollar amount for the gross payroll and for each deduction, the payroll accountant records the journal entry. The accountant debits Salary Expense and credits a liability account for each deduction. The total debits must equal the total credits.

Payment of Payroll Tax

The payroll accountant journalises the accounting entry to pay the company's after making the wages entry. The company pays Social Security tax and Medicare tax equal to the amount paid by the employee. The company also pays state unemployment tax and federal unemployment tax.

The accountant debits Payroll Tax Expense and credits the company's payroll tax liability accounts. The total debits must equal the total credits.

Accrued Payroll Entry

When the end of the period falls in the middle of the pay period, the accountant records a payroll accrual journal entry. This entry recognises the payroll expense and payroll tax expense applicable to the days worked in the period. The accountant calculates the gross wages for the specific days worked in the period. If the actual amount of hours is unknown, the accountant estimates the number of hours and uses this number to calculate gross wages and the applicable payroll taxes.

The accountant debits Salary Expense and credits Salary Payable. The accountant makes a second entry to record the payroll tax accrual. She debits Payroll Tax Expense and credits Payroll Taxes Payable. The accountant reverses these entries the first day of the following month.

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