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How to do payroll accounting

Payroll Accounting: What is it and how to do it?

What Is Payroll Accounting?

Payroll accounting is the method by which a company records employee compensation. This compensation includes wages, bonuses, commissions, and salaries that the employee earned. It also includes withheld taxes, deductions, and superannuation contributions. 

Why is Payroll Accounting important?

Employees require compensation for the work they do and payroll accounting ensures employees are compensated correctly for their hours worked. Payroll accounting also provides you with the financial records you need for due diligence purposes. 

For example, a business pays its employees an hourly rate based on the number of hours they work each week. As the business pays its employees weekly, the payroll process will take place in the early days of the following work week. If a company uses calendar months for their accounting periods, it will accrue wages and benefits based on the last day of the month. 

Using the right cloud payroll system like QuickBooks Payroll makes documenting your financial transactions and maintaining records simple. You would also be able to see the gross wages paid, payroll taxes, deductions, and net pay. 

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How To Do Payroll Accounting

To start the payroll process, you need to create a chart of accounts and generate the correct reports. With the right information, your payroll journal entries will be accurate and easy to fill out. Follow the step-by-step process below to do your payroll accounting:

1. Set up the chart of accounts

The chart of accounts is a list of accounts used to categorise your business' financial transactions. The typical account you need for payroll tracking is an expense or liability account. 

2. Gather your payroll reports

Once you’ve created a chart of accounts, you need to consolidate your reports, including the payroll register, superannuation, and payroll tax reports. You can pull these from QuickBooks in a click or two. 

3. Record your payroll journal entries

You can then record your payroll entries. With QuickBooks Payroll, this will automatically be handled whenever you create an invoice or pay a bill. However, if you make any manual payments, you need to record these yourself. For example, a gross wage would be a debit entry, and tax withholdings would be a credit entry. 

4. Post payroll journal entries to the general ledger

The penultimate step is to post journal entries in the general ledger. Once this has been actioned, in many cases you won’t be able to reverse it, so you need to ensure your data is accurate. 

5. Reconcile payroll to the general ledger

The last step is reconciliation; an additional review to ensure the ledger reflects the payroll transactions accurately. 

Following these 5 steps will ensure that you do your payroll accounting accurately. You can visit our payroll glossary to find out more.

Keep your Payroll Accounting Simple and Accurate with Payroll Software

QuickBooks payroll software powered by Employment Hero combines the best of accounting and payroll together. It is ATO and STP compliant and can help you to automatically report to the ATO in each pay cycle. It is efficient and allows you to record all of your employees’ wages, deductions, and more. 

You can book a free payroll setup session to get started at any time. 

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