Warning: Invalid argument supplied for foreach() in /home/admin/web/online-accounting.net/public_html/wp-content/plugins/wd-satellites-snippets/admin/options/sections/snippets-section.php on line 480

Warning: Invalid argument supplied for foreach() in /home/admin/web/online-accounting.net/public_html/wp-content/plugins/wd-satellites-snippets/admin/options/sections/snippets-section.php on line 480

Warning: Invalid argument supplied for foreach() in /home/admin/web/online-accounting.net/public_html/wp-content/plugins/wd-satellites-snippets/admin/options/sections/snippets-section.php on line 480

Warning: Invalid argument supplied for foreach() in /home/admin/web/online-accounting.net/public_html/wp-content/plugins/wd-satellites-snippets/admin/options/sections/snippets-section.php on line 480

Payroll Accounting

Payroll Accounting


Warning: Invalid argument supplied for foreach() in /home/admin/web/online-accounting.net/public_html/wp-content/plugins/wd-satellites-snippets/admin/options/sections/snippets-section.php on line 480

Warning: Invalid argument supplied for foreach() in /home/admin/web/online-accounting.net/public_html/wp-content/plugins/wd-satellites-snippets/admin/options/sections/snippets-section.php on line 480

Payroll accounting is one of the most difficult tasks in accounting, therefore it is important to know all the details, rules, requirements, and pitfalls.

Payroll Process: Step by Step

  1. Gross Wage or SalaryFirst, you would calculate the base pay your employee would receive. If you have salaried workers and pay twice a month, the calculation will be very simple. However, many employees receive hourly pay. Accordingly, timesheets, time cards, or some other programs or documents are necessary to track how much time each worker has accumulated during the particular pay period.In addition, some basic information about the individual you are writing a paycheck to is a must. This obviously includes the name, home address, and pay rate. To get the base pay, you would simply multiply the number of hours worked by the pay rate. however, if your workers are allowed to work overtime, the calculation can get a little more complicated. You would need to separately calculate the overtime pay for this. If you are using payroll software, this can be as simple as a couple of clicks for you.
  2. All DeductionsNext, comes the most complicated and confusing for most business owners part of the payroll accounting. This is payroll taxes. There are actually several mandatory payroll taxes you and your employee have to pay. Besides state and federal income tax, you also need to take a portion of the paycheck to cover FICA tax and possibly some local taxes. Keep in mind that the money deducted from the employee’s paycheck is not yours. Moreover, you will need to add your portion to that amount and send it to the IRS.To calculate tax withholdings, you can refer to the state withholding table for every state for which you have employees. Social security as well as exemptions the employee desires to claim should also be on hand and can be found on the W-4 form your employee had to complete. It should be brought to your attention that employees who came to work in your company in 2020 or later had to fill out an updated W-4. Other employees might also redo their W-4 and use the new version, otherwise, the old W-4 is used.Next, you will need to subtract any other deductions besides the tax withholdings. These can be health and life insurance, 401K contributions, child support payments, as well as job-related expenses your employees have to pay, which might include uniforms, meals, and union dues.
  3. Net PayThe paycheck will include the basic information about the employee the start and end date of the pay period as well as the actual pay date. For instance, the pay period might end on Friday, but the bookkeeper will take care of the payroll and hand out the paychecks (make a deposit) only on Tuesday of the following week. It will list the gross pay which would be the base pay plus the overtime pay followed by a list of various applicable deductions. The bottom line will be the net pay. This is the amount the employee will actually receive or the amount you would write the check for or make a direct deposit.

Payroll Journal Entries

Now that we have broken down the actual payroll process, it is time to take a little closer look at payroll accounting. As you will see in a moment, the journal entries required for payroll accounting are very simple. What matters is that you do all the calculations correctly during the steps described above. If you have payroll software, it will do most of the calculations on your behalf, so there is less chance that you make a mistake. If you are not in your own knowledge or simply do not have enough time for doing the payroll, there is always an option to hire someone to do it in your office or online.

Payroll Accounting

Let’s say the total gross salaries and wages you have to pay your employees for this pay period are $6,600. The tax to be withheld is as follows:

  • Federal – $1,143.
  • State – $800.
  • FICA – $680.

Your employees also have to pay union fees, which add up to $40. The journal entry to reflect this would look as shown below.

Date

Account

DR

CR

Salaries and wages expense

$9,263

Federal tax payable

$1,143

State tax payable

$800

FICA tax payable

$680

Union fees payable

$40

Salaries and wages payable

$6,600

Your payroll accounting does not end here. You will also need to make an entry to reflect the tax portion you have to pay to the government. In addition, once the paychecks are actually written or deposits are made, you will no longer have payroll liability. This entry will look as follows:

Date

Account

DR

CR

Federal tax payable

$1,143

State tax payable

$800

FICA

$680

Union fees payable

$40

Salaries and wages payable

$6,600

Cash

$9,263