What Type of Account Is Gross Payroll?
Gross payroll is one of the largest company expenses for small companies with employees. Record gross payroll in a payroll expense account. The payroll expense account is an expense account that is a sub-account of equity. Using the accounting equation, assets = liabilities + equity, can help you understand how gross payroll affects the value of your company.
Gross payroll is the total amount your employees earned per pay period in exchange for their labor for your company. Gross pay includes net pay, tax withholdings and deductions. Gross pay is what your employees earn, not what you pay them in cash. That's net pay, which is the amount you pay your employees in cash minus the sum of tax withholdings and deductions.
Your salaried employees' gross pay is the amount of their salary, which doesn't change from pay period to pay period. Calculate your hourly employees' gross pay each pay period using the following formulas. For regular gross pay: Hours Worked * Hourly Pay Rate. For overtime gross pay: Hours Worked * Hourly Pay Rate * Overtime Rate (1.5 for time and a half). Add the regular gross pay and the overtime gross pay (if applicable) to get the total gross pay for an hourly employee.
The journal entry to record payroll consists of gross pay, deductions, withholdings and cash. Record deductions (usually benefit contributions) and tax withholdings in payable accounts (ie FICA taxes payable) because they are liabilities you pay to third parties.
Gross Pay = Net Pay + Tax Withholdings + Deductions. Net Pay = Gross Pay - (Tax Withholdings + Deductions). Example: Debit - Payroll Expense (Gross Pay) Credit - Any Tax Payable Credit - Any Deducted Benefit Contribution Payable Credit - Salaries Payable before payday or Cash after payday (Net Pay)
Record gross payroll in the payroll expense account. Expenses are money your company spends to generate revenue. Expenses are on the loss side of the income statement, which is also called the profit and loss statement. Revenues represent the profit side of the income statement. In the accounting equation, expenses are a sub-account of equity. The payroll expense account is subtracted from and therefore reduces equity (what the owner or stockholders own), which lowers the value of assets (what the company owns).