Accounting is possibly the most boring subject in the world, says who? It could be confusing but trust me if you want to be rich, long-term, you must take it as the most important subject.
Now taking on the topic of Payroll accounting that has been one of the most difficult subjects to understand, this article is an attempt to show how Payroll accounting can be done in an easier way. Alternatively, you can always take accounting expert help from us in this regard and they will show you how you can inculcate the elements of payroll accounting in your career.
Payroll accounting is by far the most sorted and demanded chapter in the commerce line. Every company requires payroll accounting. A company has employees. It has to offer fringe benefits and accounts for payroll.
What is Payroll accounting after all?
Payroll accounting includes a company’s recording of that of employees’ compensation. The accounting involves several elements earned by its employees such as-
- gross wages,
- Overtime pay and so on.
The payroll accounting does not stop here. There are payroll taxes that have to be accounted for like –
- the social security taxes,
- Medicare taxes,
- federal income taxes,
- state income taxes (if applicable),
- federal unemployment tax,
- Worker compensation insurance and other costs.
Besides, with a little accounting help calculating employer-paid benefits, holidays, vacations, sick days, insurance (disability health, life, vision, and dental), retirement plans, and profit-sharing plans must also be calculated.
Such an accounting is important as it reports the income statements and balance sheet of the company too.
How does accounting help in payroll accounting?
To understand how accounting help can do wonders with the payroll accounting, it is a must that you know the accounting principles right.
For instance, in getting hold of payroll accounting, the Matching principle plays a vital role. If you remember one of the principles of accounting- Matching principle that states all the expenses must match in the same accounting period as the revenue earned.
Simply to put matching principle combines the accrual accounting and the revenue recognition principle too.
When a company follows the accrual method of accounting, the matching principles matches the expenses to the accounting period in the period that is reported. Simply if there is no direct connection between the expenses made and the revenue earned, in that case, the expense will appear on the income statement for the accounting period…funny isn’t it!
Let us take an example to understand how you can go ahead with payroll with accounting help.
Syska and sons employees an employer to work from January 26 to January 30. Now on the last working day, the employer submits his time card. It is time for the company to issue him with the payroll check at the earliest or as per the payday, say February 5.
Now if you observe, although the check is for February 5, here the principle of matching concept applies. How?
The company reports the expenses and the liability as per January when the employee was working. The same will reflect on the liability side as well. As it may be seen, since the employee worked only for five days, the company does not offer any other fringe benefits but merely the paycheck. By doing so the company reduces its liability.
Things to ponder on before you get hold with payroll accounting help-
If payroll accounting expert help words are to be believed, it is important that before you head with the payroll accounting here are certain things that need to be done beforehand such as-
Getting hold of a Federal Employer Identification Number (EIN)
This is a number where the Federal government can keep a track of all the tax payments made by the company. It uses EIN (Employer Identification Number) to do so.
· Selecting the Pay Periods
Depending upon the nature of business the pay period can be decided upon. One can select from weekly to biweekly, semimonthly to monthly.
· Listing down The Benefits Offered to the Employees
One of the major decisions is to see the kind of benefits that you or your company wishes to offer. Benefits such as offering a health insurance plan or a 401K plan etc. What must be the clauses, the duration of it etc. must be noted down distinctly so that the clauses remain crystal clear.
· Start Gathering Paperwork
Most of the companies in the US have made form I-9 mandatory. As make sure the W-4 form is duly filled it. This is done to set up the payroll system. Also asking the employee to submit a voided check towards the verification of the correct bank routing is a good method to check the bank account details. The payment can be done either by offering the paychecks or direct depositing in the bank account.
· Recording the Payroll
Under this segment, the amounts are expected to be posted to the accounts accurately. However, before you start recording the payroll, setting up the payroll accounts on the chart of accounts list is important. You may require an accounting expert help for that. This chart of accounts is nothing but a list of accounts that categorizes the financial position of the business.
So, you will require an expense account or a liability account. The expense account is the cost that you get as a consequence of running the business. You may include gross wages or health insurance or even workers’ compensation under this heading.
In A Nutshell,
Doing payroll accounting along with accounting expert help is the best way to conduct your payroll systems. They consist of two journals wherein the first one talks about payroll journal and the other one on payroll disbursement journal. This day the computer system and various applications have made the task of payroll accounting simpler. Needless to state, unless you are clear with the basic payroll accounting, none of the systems can be helpful to you.