There are some accounts you may not need, like health insurance if it’s not offered and others that are required, like federal income tax payable, to comply with payroll laws. The accounts that you need to set up to track payroll will generally be an expense account or a liability account. An expense is a cost that you have incurred as a result of doing business, like for wage expense and health insurance.
- The result is one place where you can manage multiple services.
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- In these initial entries, you also record any employment taxes you owe.
- But a record of tax payments will show unemployment taxes listed alongside any taxes the employee paid.
- An expense is a cost that you have incurred as a result of doing business, like for wage expense and health insurance.
- Follow the basic steps to set up and run your first payroll.
For example, say an employee has 24 hours of PTO and has already taken eight hours off. Those eight hours have already been paid out and are an expense. The remaining 16 hours are still owed to the employee and are, therefore, a liability to the company. For instance, a small business with one or two employees may not offer 401(k) matching or even health insurance.
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If you’re overwhelmed with the many aspects of learning how to do payroll accounting, you’re not alone. It’s important to choose a quality accounting program that will make documenting transactions easier. You’ll thank yourself when an audit arises or you just need to prepare an income or cash flow statement at year-end. Most companies do it at least monthly and definitely at year-end.
Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. Follow the basic steps to set up and run your first payroll.
Types of payroll accounting entries
That means anything recorded as a payroll liability can become a payroll expense after you run payroll and disperse the money. To accrue vacation on the books, you must use a journal entry. Below is an example of the journal entry we would record for payroll accounting examples an employee who earns a wage of $30 per hour. Say you wanted to see how much you spent on employee payroll last year, as opposed to the year before. All the wages you’d be looking at are payroll expenses (i.e., wages that you have already paid).
