If you’re an employer, you can’t merely walk away once you’ve paid your workers’ wages. Payroll expenditures must also be taken into consideration in your accounting records. This is where the role of Lohnverrechnung Wien comes in handy. Learn how to properly record payroll transactions in order to maintain the accuracy of your accounting records.
What is payroll accounting and how does it work?
Payroll accounting is the process of entering all payroll transactions into your accounting records. In your role as a company owner, payroll journal entries are used to record payroll costs in your accounting records.
Payroll journal entries are classified as part of the payroll account and fall under that account. In your payroll account, make a note of the following expenses:
- W-2 forms are used to record salaries, wages, paid time off (paid time off), bonuses, commissions, and other taxable income earned by employees to the IRS.
- Payroll taxes are levied on employees. Withholding of federal income taxes, Social Security taxes, Medicare taxes, and any relevant state or local income taxes from employee earnings.
- Employer contributions to Social Security and Medicare taxes, as well as federal and state unemployment taxes, are all included.
- Fringe benefits provided by the employer include health insurance, life insurance, education help, and other advantages.
- Employee deductions for benefits such as health insurance, a retirement plan, and other such programs.
- Other types of deductions include child support, spousal support, overdue tax bills, and so on and so forth. You can keep track of employee remuneration and other payroll expenditures with the aid of payroll accounting software. Payroll accounting provides you with a precise picture of your spending at any given time.
Keep your Lohnverrechnung Wien up to date in order to have a comprehensive view of your company’s finances and to ensure that you remain compliant.
Payroll accounting (Lohnverrechnung Wien) categories
If you’re keeping track of payroll in your books, you should be aware of the three sorts of journal entries for payroll accounting that you should make:
- Initial recording
- Accrued wages
- Manual payments
You must approach each sort of payroll accounting entry in a distinct manner. Typically, you’ll be working with the first few recorded entries. Let’s see how each paycheck entry stacks up against the others.
Initially recorded payroll transactions, also known as originating entries, are the most important entries in a payroll accounting system. It’s the initial item you make in a transaction log to indicate that a transaction occurred.
Record the gross pay earned by your workers, as well as any withholdings, for these entries. Include any employment taxes that you owe to the government as well.
At the conclusion of each accounting period, make a note of any accrued wages. You may use these entries to track the amount of pay you owe to workers who have not yet received their salary. After you’ve paid the salaries, go back through your ledger and reverse the entries to make sure that the payment was properly recorded.
Manual payments are encountered from time to time in payroll accounting. When it comes time to alter an employee’s compensation or terminate an employee, these are the entries to make.
Seven phases of Payroll accounting
Payroll accounting might seem to be a frightening prospect at first look. Following these seven steps, however, you will be able to master the art of payroll accounting with ease.
Create payroll accounts for your employees
Make sure that your payroll accounts are set up in your chart of accounts if you haven’t previously (COA). Payroll accounts consist of a combination of costs and liabilities, as shown in the table below. Some instances of payroll accounts include the following:
- Expenses for gross wages
- FICA taxes are due from employees.
- Taxes on federal income are due.
- Taxes on state revenue are due.
- Wages that are due
- Employee health insurance premiums are due.
- Payable for vacation
Depending on your company and the number of workers, you may need to set up numerous payroll accounts.
Determine the amount of taxes and any deductions to be claimed
Work out how much you should withhold from employee earnings and how much you should contribute as an employer by calculating taxes and deductions.
Taxes are calculated differently based on the employee and the location of the firm. Before you start calculating your taxes, make sure you are familiar with state and local payroll regulations.
Take into consideration employing payroll software to make the process of computing taxes and deductions more efficient. Payroll software takes care of the tax computations for you, allowing you to devote more time to your company’s operations.
Compile payroll information
If you opt to utilize payroll software, create reports to receive a breakdown of the payroll transactions that have occurred. You may compile the following reports and papers to make the process of recording payroll and payroll tax entries more efficient:
A detailed breakdown of the taxes deducted from employee paychecks, as well as any taxes owed by the employer, are included in the payroll tax report. It is possible that you may need to gather reports for deductions, donations, and other perks as well.
Keep track of payroll costs
After you have obtained the information necessary to make payroll entries in accounting, you should go over to your books and begin to work.
First and foremost, make a note of payroll costs in your accounting records. This includes any money that you received or paid during the time under consideration (e.g., wages, salaries, etc.).
Increase the expenditure account due to the fact that they are reimbursable sums. As a reminder, costs rise in direct proportion to debits. Debit the wages, salaries, and corporate payroll taxes you paid. This may result in an increase in your costs for the time being.
The fundamental rule is that when you record payroll, you debit Gross Wage Expense and credit all of the liabilities accounts.
Maintain a list of payables
Following that, make a list of any sums you owe but have not yet paid. These sums are referred to as liabilities or payables.
Due to the fact that you owe payroll amounts, you accumulate obligations. Liabilities grow as a result of the credit. Employee paychecks should be credited for the FICA tax due, federal income withholding due, state income withholding due, and any additional withholdings. Your payroll responsibilities will grow as a result of this.
Double-check all of your documents
After you’ve finished inputting your costs and payables, go back through your records to ensure they’re correct. Examine your payroll reports to see whether the amounts you entered correspond to the information you have.
Make certain that your debits and credits are balanced as well. If your books don’t balance, go back through your processes to identify and correct the problem with your accounting.
Accounting periods during which a transition is made
You finally make good on the debts you owe to creditors, including workers and government organizations. Liabilities that have been paid are no longer payables.
When you change accounting periods, you must make extra journal entries to lower the balance of the cash account and delete the balance of the liabilities account. By debiting the payable entries in your books, you may reduce the liability account balance.
As you pay off debts, the value of your assets (such as cash) diminishes as a result. Credit the relevant asset account, such as your Cash account, in order to reflect the decline in asset value.