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Bookkeeping Concepts

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What is payroll accounting?

Payroll accounting involves a company's recording of its employees' compensation including:

  • gross wages, salaries, bonuses, commissions, and so on that have been earned by its employees
  • withholding of payroll taxes such as federal income taxes, Social Security taxes, Medicare taxes, state income taxes (if applicable)
  • withholding for the employees' portion of health insurance premiums, employees' contributions to savings plans, garnishments of salaries and wages, employees' contributions to United Way, etc.
  • employer's portion/expense for Social Security taxes, Medicare taxes, state and federal unemployment taxes
  • employer's portion/expense of fringe benefits such as health and dental insurance, paid holidays, vacations and sick days, pension and savings plan contributions, worker compensation insurance, etc.

If employees are paid weekly or biweekly and the company has calendar month/year accounting periods, the company will have to accrue for the wages and benefits earned by the employees (but not yet paid or recorded in the general ledger accounts) as of the date of the financial statements.

You can see more details including journal entries at our free Explanation of Payroll Accounting.