Grouping the Payroll Service Information
Payroll services understand that every company has different recording needs for payroll expense. Some companies record all gross payroll expense as well as payroll tax in a separate section of the general ledger. Other companies record payroll expense by the area of the company in which the employees work, such as office staff, marketing and sales. In order to allow for proper accounting with multiple needs, payroll services allow you to create groupings of your payroll data in the manner in which you need to create a journal entry for outside payroll service.
Access your account online or speak to your representative at the payroll service to create the groupings you need to properly separate your payroll in the appropriate categories.
Recording the Journal Entry
Once your payroll information is properly grouped, you can easily transfer the information to your accounting general ledger with a journal entry. Print a hardcopy of the payroll information for a payroll run and next to each grouping, pencil in the general ledger account associated with the expense. Be aware that not every item on a payroll report always represents an increase, or debit, to an expense account. For example, if you withhold the employee’s portion of insurance costs from payroll, those amounts will represent a decrease, or credit, to insurance expense account.
When you have identified each total amount and the proper general ledger account for posting, enter all the amounts, positive and negative, into an adding machine. The net amount should equal the total amount deducted from your operating account for the payroll processing. If the net amount does not equal the amount deducted from your operating account, you have made a mistake in entering the information in the calculator or have failed to identify and label an account on the payroll report. Review your data and repeat the process until the net payroll equals the operating account deduction.
Once your payroll entry is in balance, post a journal entry to your accounting general ledger, starting with the decrease, or credit, to your operating bank account. When you have completed your journal entry, the debits and credits should equal. Print a copy of the posted journal entry for your records and attached the payroll report for backup.
Advanced Posting Techniques
If your payroll service allows for custom reporting, you may be able to create a custom report that groups your payroll information into the appropriate general ledger account groupings and creates a balanced journal entry report that can be directly entered into your accounting general ledger. If the payroll service allows custom reporting but does not provide a way to create a custom journal entry report, you may be able to export the data to an Excel spreadsheet with pre-designed calculation and links that create the journal entry report for easy entry.
Reference and Photo Credit
“Principles of Accounting”; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991
Photo by Youssef Abdelaal