Payroll accounting is a process that occurs in all businesses and focuses on the financial management of a company’s payroll information. Accountants will record information relating to employee salaries, bonuses and commissions; accountants will also record and report the taxes related to this information in the general ledger. Payroll clerks and managers are responsible for providing this information to accounting, along with maintaining the paperwork necessary to fulfill legal requirements for showing accurate employment records. Payroll accounting is often separate from the regular accounting office as the information is highly sensitive and not for view by multiple employees.
Companies will often have a payroll office that keeps up with all the legal requirements for hiring employees. Information relating to background checks, drug tests, employment contracts, benefit agreements, wage concessions and other information will often fall under specific human resource laws. Failing to maintain accurate employment records can result in heavy fines or other penalties for failing to follow laws and regulations. Some companies may use accountants to audit the payroll accounting processes in the human resource office. This audit ensures that no violations of current human resource law are present in the company.
Entries for recording payroll figures are fairly simple. In today’s technological environment, many of the entries occur in real time using pre-programmed directives in the company’s accounting software package. Accountants in the payroll accounting department will then review the entries to ensure no errors occurred during automatic processing. The basic entry will debit payroll expense for the wages and salaries of each employee and credit payroll payable. The company may have separate accounts that define specific payroll groups. Once paid, the system will debit payroll payable and credit cash. These entries — in terms of debits and credits — are also the same for payroll tax accounts.
Payroll accounting often requires companies to remit payroll taxes on a scheduled basis to the appropriate government agency. Accountants will need to fill out the appropriate forms and cut a check to the agency for these taxes, often on a quarterly basis. Larger government agencies may have an online depository system for transferring this money online as necessary. Accountants will need to reconcile these accounts to ensure that all money posted into the account will go to the appropriate agency. Hanging debit or credit balances indicate a problem internally with the payroll accounting system. Accountants will then need to adjust figures or percentages for withholding to correct this problem.