What is Payroll Accounting?

on March 28, 2024

What is Payroll Accounting?Payroll is commonly used to prefer the total amount of money that a company have to pay to its employees. Whereas, payroll accounting involves a company’s record of its employee’s compensation including.

  • Wages, salaries, bonds, commission and even everything that earned by the employees from their organizations.
  • Withholding of all payroll taxes such as federal income taxes etc.
  • Withholding for the employee’s portion of healthcare premiums and contribution to united way etc.
  • Employer’s expenses for social security taxes and Medicare taxes etc.
  • Employer’s portion of fringe benefits etc.

Payroll Accounts: –

Accounting for payroll is generally done through different official documents such as timesheets, payroll ledger and paychecks. Payroll accounting involves in the process of issuing reports to upper management. It provides the ability to make decisions about the company’s labor-cost data. Basic payroll accounts are:

  • Assets:

   Cash   it’s a petty cash account which is used to empty the accrued payroll account when the payroll is distributed to the company’s employees.

  • Liabilities:

   Accrued Payroll  This account represents a liability calculated by taking the gross pay and subtracting all deductions, or the amount that is due to the employees.

   Federal Income Taxes Withheld – This account serves as a deduction from the gross pay or payroll account. It is an accumulation of payroll taxes as a percentage amount which is due to the U.S. Government. Payroll tax rates are too different from business to business.

   Federal Insurance Contributions Act (FICA) Taxes Payable – This account also represents a liability that is initially due to the U.S. Government which is used to fund the institutions like Medicare and the Social Security Administration etc.

   Insurance Withheld – This is another deduction from the gross pay and represents a contribution to the employee’s insurance provided by the employer.

  • Expenses:

Payroll – This account is the gross pay that is calculated by a payroll accountant such as the salary payment or the hourly rate times and the number of hours worked.

Payroll Entries: –

Payroll entries are used to record the compensation paid to employees. Then these entries are incorporated into an entities financial statements through general ledger. They key types of payroll journal entries are:

  • Initial Recordation:

The primary payroll of journal entry is used for the basic record of payroll. This entry                      records the gross wages earned by the employees as well as withholding from their pay and any additional tax duties to the government by the company.

  • Accrued wages:

There may be an accrued wages entry that will recorded at the end of each accounting cycle, and intended to record the amount of wages owed to employees but not yet paid. This entry is then reversed in the following accounting period, so that the initial recordation entry can take its place. This entry may be avoided if the amount is immaterial.

  • Manual Payments:

A company may occasionally would print the manual paychecks to employees, either it may occur because of the pay adjustments or the employment terminations.

Read More:-Payroll & Time Tracking

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