How to Reconcile a Payroll Account
Payroll is often an intrinsic part of operating a business. Employees need to get paid; taxes and benefits should be considered and paid as well.
Because payroll can be very complex and detailed, firms often decide to outsource this function, but they still need to book payroll in their accounting systems. Accounting for payroll usually involves many general ledger accounts to capture data about expenses and liabilities, including payroll payable and tax expense accounts.
Gather your payroll statements and reports. To reconcile payroll accounts, you need to compare them to outside documentation. You can also get bank statements to verify cash paid for payroll and taxes. Run a trial balance report on the specific payroll accounts you want to reconcile; balances should match with outside documentation. For example, payroll liability per payroll report should agree with the liability in the general ledger. Any differences should be investigated --- most are due to errors in the general ledger area.
Get reports from your payroll module if you're running payroll in-house. Compare totals from module reports to balances in accounts in the general ledger. If module reports indicate that your year-to-date payroll tax expense is £6,500, for instance, this amount should be the balance on your tax expense account. If not, then you need to investigate the reason for the discrepancy by looking at each individual month's expenses. The discrepancy could be due to a mapping problem in the payroll module, causing data to be posted in the wrong accounts.
Adjust the general ledger for any differences and discrepancies. This is usually the last step in reconciling payroll accounts. Since the point of reconciliations is to assure that accounts' balances are correct, when errors or omissions are found, adjust the accounts promptly. Make sure that the salaries expense account shows gross pay, and that the tax expense account reflects only employer's taxes --- not employees' withholding.