In any organization, one crucial element is always at play: money. Up to 50 percent of most annual budgets can go towards the salaries you pay team members and staff, which means keeping track of the money on payday is just as important as the business being run.
Payroll journal entries are the optimal way to track these payroll expenses with minimal stress for in-person employees and any hybrid or remote staff you might employ. Using a payroll service in the everyday happenings of the office is a great tool to help alleviate the complications of bookkeeping.
It's a bit like sorting out your checkbook balance. If you're familiar with that process, then introducing a payroll journal entry into your routine should be like taking the training wheels off of a bike.
Payroll journal entries are an effective way for organizations of any size to keep track of the gross wages of their staff and all compensation. This way, you can easily look back over any pay period and be able to see the total amount of accrued wages, gross pay, and any other payroll transactions.
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.
What is a payroll journal entry?
A payroll journal entry is a tracked account of all the payroll expenses being divvied out in the form of salaries and other payroll-related items. These ficial entries are included in the organization's ficial statements through the general ledger, helping to streamline the storing of everything to do with employee wages and more.
There are a handful of expenses that a payroll journal entry will record. Here are a few examples of what your accountant might document within an accounting period:
Employee compensation
This would be any form of compensation that an employee might receive in return for their work. Most often, that's monetary with a bi-weekly salary, but it could also look like extra time off, paid time off (PTO), or a bonus.
Benefits
Individual or team benefits might include compensation for someone's work in addition to the money they routinely receive. These benefits could include a retirement plan, organization shares, or insurance policies.
Employer taxes
This item is any money paid by the employer or organization to the government as taxes every year. Major kinds of taxes would be state income taxes, federal income taxes, state unemployment taxes, federal unemployment taxes, or taxes for health insurance or other premiums.
Payroll taxes
A payroll tax expense would be all the money an organization pays for taxes that are directly correlated to the salary expense of employees' pay, like social security tax or Medicare taxes.
Deductions
Payroll deductions are the withholdings an organization automatically takes from a paycheck to go toward that individual's taxes. Net pay meaning how much an employee actually receives in a paycheck – is the amount after deductions have been made. Every tax season, you'll find this amount in withholdings on your W2.
Streamlining your accounts with these non-negotiable elements could be the difference between a quarter on Cloud 9 or ripping your hair out in frustration. Why make it harder on yourself? Payroll journal entries are in place to work for you.
Types of payroll journal entries
So we've been talking about payroll journal entries, but what do they look like? What different types of entries are there? The three main examples are:
- Initial entries
- Accrued wages
- Manual payments
Let's explore each in-depth below.
Initial recordings
Initial recordings are exactly what they sound like the front lines of the entries recorded for payroll accounting. They're the entries you'll find before others within a general ledger that document a transaction. They include team members' wages and their tax withholdings.
A shortened example would look like this:
DebitCreditSalaries ExpenseXXXPayroll taxes expenseXXXSocial security taxes payableXXXMedicare taxes payableXXX
