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Payroll can be tricky and is often posted incorrectly. One very good clue that your payroll is off is that your balance sheet shows Payroll Liabilities in it. Or worse, you have negative payroll liabilities. Every time payroll is posted in its entirety payroll liabilities should zero out. At the same time if you double click your payroll liabilities from your chart of accounts you should see entries going in and zeroing out for each pay period. If there is no activity in the payroll liabilities account then you may be suffering from the classic payroll mistake that many bookkeepers make – they book the net payroll as the payroll expense, and the book the tax payment as the employer tax expense. This is not correct.

This video is not the web cast – it is simply a video on payroll the tutorial is further down in the post:

Here is a sample payroll report (A replica I created based on a well known payroll company here in the US):

Figure 1 Click for a clearer image

Payroll is made up of several things. The first thing that happens is that we pay the employees some gross amount. So let’s say that the total payroll for a pay period is $9,462.79. That gross payroll number may be made up of several things. Regular Hourly Pay, Overtime, Salaries, and let’s say Holiday Pay. When it comes to the bookkeeping, that particular breakdown doesn’t usually matter.

Here is what really does matter. In fact if you are looking at a new payroll report format this is the information you want to find in the report and gather for bookkeeping purposes:

Gross Payroll

  • Withholdings
  • Other Deductions (Health Insurance, Workers Comp)
  • Total Taxes
    • Employer Share
    • Employee Share
  • Payroll Fees

There are 3 Payments to record:

  • Net Pay
  • Taxes
  • Fees

The Net Pay is made up of several things:

Gross Pay 9,462.79
Less Employee Taxes (2,298.90)
Less Medical and Other Deductions (54.50)
Net Pay 7,109.39

Payroll Taxes:

Then the payroll taxes have to be figured. This is made up of 2 parts. The remittance of the payroll taxes ($2,298.90 from above) and the employers share of the taxes ($1,393.63)

Total Payroll Taxes are $3,692.53

So the Payment is recorded as follows:

Net Check $3692.53


Payroll Taxes (employer expense): 1,393.63

Payroll Taxes Payable (to zero out the liability): 2,298.90


File Download:

Download the excel template from the webinar here

Video Tutorial:

Click to watch the web cast
  1. April 28, 2010 at 5:42 AM

    This is a very clean and clear review of the more important aspects of payroll processing. Great post!

  2. April 28, 2010 at 9:03 AM

    Thanks Chris! Let me know if there is anything I can help you with in the future!

  3. Adam
    September 3, 2010 at 2:27 PM

    Seth – great video…. 1 question. How do i adapt this if my payroll company prints the checks but the are pulled individually from my bank acct as they are cashed. How would i reconcile them doing it using your method.


    Adam gordon
    State Line Pizza

    • April 7, 2011 at 12:09 AM

      So sorry I just caught this now all these months later. I no longer update this blog so for future reference please visit my current blog at http://www.nerdenterprises.com/blog
      To answer your question you would do it a little differently. Since all checks come out of your account individually you would not need a payroll clearing account. You would simply record each individual check and then reconciling should not be an issue.

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