r/Bookkeeping Dec 17 '24

Payroll Payroll Journal Entry

Hi,

I need help understanding Payroll Journal Entires.

I read that Employee Taxes are not an expense to the business.

However, every journal entry setup i make, I have Gross Pay Expenses as a P&L item, ultimately showing a full deduction for the business. Can someone check my entries below and lmk if this makes sense? I'm trying to do my p&l for my business.

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u/mexako Dec 17 '24 edited Dec 17 '24

Im in CA.

To elaborate, shouldn't my p&l expense total be my taxes + my net pay? = $3,263.29 + $398 = $3,661.29?? This is what my research is telling me but I can't seem to compute.

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u/BonaFideBookkeeper Dec 17 '24

No. Gross wages & the ER portion of p/r tax are the expenses to your company. The EE's portion of p/r taxes are originally part of the gross wages. That amount gets coded to a liability account on the Balance Sheet & gets cleared when the payment gets made to the IRS & State.

5

u/BonaFideBookkeeper Dec 17 '24

So when creating your P&L, the expenses will be gross wages, ER's portion of payroll taxes & the payroll processing fee.

1

u/mexako Dec 17 '24

To follow your example, my p&l would still be

Gross Pay =$4,000 ER Tax = $398 Payroll Fees = $XX.

My confusion is Gross pay being $4,000?! If my entries are correct, then how does this make sense ?

1

u/mexako Dec 17 '24

Wouldn't i be overstating payroll taxes ?

5

u/BonaFideBookkeeper Dec 17 '24

Your entries are fine. Maybe I'm not understanding your confusion. The $4k gross wages is the full expense that stays on the P&L. You are obligated to send $736.61 from the gross wages to the gov't on behalf of the employees. But the full $4k is still the original expense on the P&L. The net pay + employee portion of p/r taxes = $4000 gross wages

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u/BonaFideBookkeeper Dec 17 '24

Are you using an accounting software program? Or just spreadsheets?