Journal entry is a good way to record the accounting information of payroll transactions that you do manually or via third-party services like Paycheck or your personal accountant.

Following are examples of how to record manual payroll transactions using journal entry and checks. The scenarios described in this article are basic and does not include insurance or retirement. For more complex payroll transactions, please consult your payroll service provider or accountant.

Scenario #1: Fred's Residential Remodeling Company is running their payroll through Paychex for 5 employees. In this example, Paychex is taking all the money out of your account including the taxes and then pay it on your behalf. This way, your company is not responsible for paying the Federal and State tax agencies.

The total amount on this transaction is $4 055.00.

  1. Select the Plus icon (+) at the top, then Journal Entry.
  2. Add the paycheck date and entry #.
  3. Add the Debit and Credit accounts. All accounts used in this example are expense accounts except for the bank (Checking) account.
    1. Debit expense account used to track gross wages. ($4,055.00)
    2. Debit expense account used to track Social Security. ($251.41)
    3. Debit expense account used to track Federal Unemployment. ($32.44)
    4. Debit expense account used to track Medicare. ($58.80)
    5. Debit expense account for State taxes. ($137.87)
    6. Debit expense account for Paychex Processing Fee. ($45.00)
    7. Credit Bank account payroll is deducted from. ($4580.52)
  4. Select Make Recurring
  5. Enter a memorable Template Name and set Template Type to Unscheduled.
  6. Select Save Template.
  7. Select Save to save the journal entry.

 

Note:

  • Skip steps 4-6 if you only intend to do this transaction once.
  • To access the template you created for this transaction: Select the Gear icon at the top, then Recurring Transactions.

User-added image

 

Scenario #2: Fred's Residential Remodeling Company is running their payroll through Paychex for 5 employees. In this example, the company is responsible for paying the payroll liabilities.

The total amount on this transaction is still $4 055.00.

User-added image

  1. Select the Plus icon (+) at the top, then Journal Entry.
  2. Add the paycheck date and entry #.
  3. Add the Debit and Credit accounts.
    1. Debit expense account used to track gross wages. ($4,055.00)
    2. Debit expense account used to track Social Security. ($251.41)
    3. Debit expense account used to track Federal Unemployment. ($32.44)
    4. Debit expense account used to track Medicare. ($58.80)
    5. Debit expense account for State taxes. ($137.87)
    6. Debit expense account for Paychex Processing Fee. ($45.00)
    7. Credit bank used for processing payroll by the amount of processing fee. ($45.00)
    8. Credit Liability account used for tracking payroll liabilities. ($1398.98)
    9. Credit bank account used for processing payroll by net amount of the paychecks. ($3136.54)
  4. Select Save to save the journal entry.

Note:

  • The $1 398.98 is now sitting in the liability account waiting to be paid. Use the liability account used in this journal entry when you are ready to create a check to pay the taxes. This will zero out the liability or lower it to the current outstanding amount.
  • Federal and state employee withholding taxes are not included in this entry because this should come from the employee's gross pay and go directly to the tax agency. The employer is the "middleman" whose sole responsibility is to deduct and give the money to the government thus, the money should not be an expense to the employer.

 

Scenario #3: Fred's Residential Remodeling Company is running their payroll through Paychex and today, the company needs to issue a final check for their resigning employee.

Issuing the last paycheck of a resigning employee is the most common example when a company that is running their payroll through a third party still needs to issue a check. Make sure to contact your payroll service provider and give them the withholding amounts and the check number used for the paycheck.

  1. Select the Plus icon (+) at the top, then Check.
  2. fill out the necessary information.
  3. (Optional) Memo - something descriptive such as "Final Paycheck" will show on reports for the bank account.
  4. Select Save and close.

Once done with the check, a journal entry is needed to clear out the liability account used on the paycheck. This entry will expense the gross wages and the employer's portion of the payroll taxes. It also clears out the liability account back to zero, taking care of the employee and employer portion of the taxes. This is fine since it is actually the service which will pay these taxes.

  1. Select the Plus icon (+) at the top, then Journal Entry.
  2. Use the same date as the paycheck
  3. Add the paycheck number this journal entry is referenced to in the Entry # field.
  4. Add the Debit and Credit accounts.
    1. Debit the expense account you have for tracking compensation. (Per above example: $1400.00).
    2. Debit the expense account used to track payroll tax expense. (Per example: $132.80).
    3. Credit the bank account used for payroll by the total of employer and employee paid taxes. (Per example: $519.90).
    4. Credit the liability account by the employee's net payroll. (Per example: $1.012.90).
  5. Select Save to save the journal entry.

User-added image

In the rare case that you would pay the taxes directly, the same procedure is used with some slight modifications to your final journal entry. You would only debit the expense account you have for tracking compensation by the net pay instead of gross ($1,012.90 instead of the $1400.00.) and credit the liability account by the same amount.

The taxes would be zeroed out when you create the check to pay the federal and state agencies. When the checks are written you would list the payroll liability account. This will either zero out the account or adjust the balance to the current amount of payroll taxes still due.

6422