Thursday, November 8, 2012

Journal Entries for Payroll

Employers record two basic types of payroll entries: paying the employees (payroll entry) and paying the employer payroll taxes (employer payroll tax entry).

A. Payroll Entry

   Example:  Employees earn $100,000 for the month, and are paid
             on January 31.  The employer withholds the following:

        Federal Income Taxes           $15,000
        State Income Taxes             $ 5,000
        FICA Taxes                     $ 7,650

        After withholdings, the employees' net pay was $72,350.

                                                Debit     Credit
                                               -------   --------
        1/31  Salary Expense                   100,000
                 Federal Income Taxes Payable              15,000
                 State Income Taxes Payable                 5,000
                 FICA Taxes Payable                         7,650
                 Cash                                      72,350

        Note: Examples of other potential withholdings include amounts
              for pensions, insurance, union dues, etc.

B. Employer Payroll Tax Entry

The employer's payroll taxes include matching the FICA and paying state and federal unemployment taxes.
   Example:  To continue with the preceding example, assume that state
             unemployment taxes are $1,500 and federal unemployment
             taxes are $500.  The employer would record the following

                                                Debit     Credit
                                               -------   --------
        1/31  Payroll Tax Expense                9,650
                 FICA Taxes Payable                        7,650
                 State Unemp. Taxes Payable                1,500
                 Federal Unemp. Taxes Payable                500

        Note: The taxes will be remitted to various government agencies
              at a later date.

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