where should paychecks and distribution of payroll be recorded
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Where should paychecks and distribution of payroll be recorded?
”Payroll” is the term used to refer to employee wages in business. If an employer is finalizing the payroll, it means that he or she is finalizing employees’ paychecks for a particular period.
What is payroll accounting?
Payroll accounting is the recording of all payroll transactions in your books. As a business owner, you use payroll journal entries to record payroll expenses in your books.
Payroll journal entries fall under the payroll account and are part of your general ledger. Record the following expenses in your payroll account:
- Employee compensation: Salaries, wages, paid time off (PTO), bonuses, commissions, and other taxable income reported on Form W-2.
- Payroll taxes: Federal income, Social Security, Medicare, and applicable state or local income taxes withheld from employee wages.
- Employer taxes: Employer match of Social Security and Medicare taxes, as well as federal and state unemployment taxes
- Employer portion of fringe benefits: Health insurance, life insurance, education assistance, etc.
- Employee deductions for benefits: Health insurance, retirement plan, etc.
- Other deductions: Child support, spousal support, outstanding tax liabilities, etc.
Payroll accounting helps you keep track of employee compensation and other payroll costs. Accounting for payroll gives you an accurate snapshot of your expenses.
To get a clear picture of your company’s finances and stay compliant, keep your payroll accounting up-to-date.
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Types of payroll accounting entries
When recording payroll in your books, there are three types of journal entries for payroll accounting that you should know about:
- Initial recording
- Accrued wages
- Manual payments
You must handle each type of payroll accounting entry differently. Typically, you work with initial recording entries. Let’s take a look at how each payroll entry compares.
While partnering with a payroll provider is more practical, it is possible to complete your company’s payroll on your own.
- Proper payroll management is the key to ensuring your employees are paid on time and your legal obligations are met.
- There are several steps required to properly track and issue payroll.
- The right payroll software or service can help ensure your payroll is processed accurately and in a compliant and timely manner.
- This article is for small business owners and human resources professionals who are exploring ways to manage payroll processing.
When it comes to processing payroll, it’s usually best to invest in a payroll service or to work with an accountant, because you avoid much of the cumbersome administrative and tax-related work. Despite the benefits of outsourcing payroll, however, many small businesses decide to do it on their own to save money.
If you’re interested in processing payroll manually, there are a few steps you need to take. Depending on the size of your business, this can be a very complicated process. And, if you’re not already an expert in payroll and tax law, you could run into issues with the IRS.
While this guide will provide you with some actionable steps for processing payroll, you should consult an accountant or payroll professional to ensure you’re compliant with state and federal tax and employment requirements. This guide includes a basic overview and a more detailed, step-by-step process for manually completing your company’s payroll.
Basic payroll processing steps
Think of these basic steps as a roadmap for your payroll process. If you have payroll experience and need a quick refresher, this first set of steps can be a quick resource. If you’re looking for a deeper dive, keep scrolling to see a more detailed guide.
Take these steps before you start calculating pay:
- Get an employer identification number (EIN).
- Establish state or local tax IDs.
- Collect employee tax and financial information, including W-4 forms.
- Set up a payroll schedule.
- Choose the right payroll schedule for your business.
- Establish tax payment dates.
Follow these steps to manually process payroll:
- Review employee hourly schedules.
- Determine overtime pay.
- Calculate gross pay.
- Determine deductions.
- Calculate net pay.
- Issue payments to employees through their preferred delivery method (e.g., paper check, direct deposit).
Keep these things in mind after each pay period:
- Keep payroll records.
- Be aware of potential miscalculations and mistakes.
- Report new hires to the IRS.