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newSchoolWorks.com › VoTechWorks › Business & Cross-Cutting › Bookkeeping / Office Administration › Payroll: Calculation, Compliance, and Processing › Lesson 7
BUS-BOOK55-03 · Lesson 7 · 13 clock hours · practice

Payroll Journal Entries and Payroll Liability Accounts

Objective. Students will record the payroll entry (gross wages, all withholdings, net pay) and the employer payroll tax entry in a general journal, post to a general ledger, and reconcile payroll liability account balances.

⚠ Pending professional review

This lesson, its worked examples and its practice questions has not yet been verified by a credentialed professional in the field or by a certification or approval body. It is a study draft and may contain errors. Do not use it as instructions for work on a job site or on live equipment. Always follow your instructor, your supervising professional, and current official references and regulations.

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Why Payroll Journal Entries Matter

Every time you process a payroll, two things happen in the accounting records: (1) the company records what it owes employees and what it must withhold, and (2) the company records the employer's own share of payroll taxes. These two events require two separate journal entries. Getting them right is not just good bookkeeping — it is a legal obligation. Errors in payroll liability accounts can cause late deposits, penalties, and IRS notices. Accuracy is the professional standard, and your goal in this lesson is to produce entries where every debit equals every credit and every liability balance matches the payroll register.

The Two Standard Payroll Journal Entries

Entry 1 — The Employee Payroll Entry

This entry records the gross wages the company owes employees and all amounts withheld from employee paychecks.

Common credits in this entry include:

The debit to Wages Expense equals the sum of all credits. That balance is always gross pay.

Entry 2 — The Employer Payroll Tax Entry

This entry records the taxes the employer owes from its own funds — not withheld from employees.

Common credits include:

Employers do not withhold FUTA or SUTA from employees — those taxes come entirely from the employer.

Posting to the General Ledger (T-Accounts)

After journalizing, you post each amount to its ledger account. A T-account has a left side (debit) and a right side (credit). Liability accounts carry normal credit balances, so credits increase them and debits decrease them.

For each liability account — FIT Payable, FICA Payable, FUTA Payable, Health Insurance Payable, Net Wages Payable — post the amounts from both journal entries. Add up all credits and subtract any debits to find the ending balance. After payroll is journalized but before the deposit is made, these balances should equal exactly what the payroll register shows is owed.

Simulating the Tax Deposit Entry

When the company actually remits taxes to the IRS or pays employees, a third entry zeroes out the liability accounts:

After this entry, every liability account balance drops to zero, confirming the obligation has been met. IRS Publication 15 (Employer's Tax Guide) describes the deposit schedules (monthly or semi-weekly) that determine the deadline for remitting withheld taxes and employer taxes. Always check the current edition for your deposit schedule classification because it can change based on the prior year's tax liability.

Writing a Reconciliation Memo

A brief reconciliation memo documents that the liability accounts are cleared. It should state: the payroll period, the date of the deposit, the account names, the opening balance, the amounts posted, and the ending zero balance. This memo becomes part of the audit trail — evidence that the books agree with the tax deposit. Keep it with the payroll register and deposit confirmation.

Accuracy and Professional Standards

Bookkeepers are the first line of defense against payroll errors. Before finalizing any entry:

When your entries are balanced and your liability accounts reconcile to zero after the deposit entry, you have completed the payroll accounting cycle correctly.

Key terms8

Payroll Journal EntryA general journal entry that records gross wages as an expense and all withholdings plus net pay as liabilities; two entries are standard — one for employee payroll and one for employer taxes.
Gross PayTotal compensation earned by an employee before any deductions; the amount debited to Wages Expense in the employee payroll entry.
Net Wages PayableA liability account representing the net pay owed to employees after all withholdings; credited in the employee payroll entry and debited when employees are paid.
FICA PayableA liability account (often split into Social Security Payable and Medicare Payable) holding both the employee-withheld share and the employer's matching share of FICA taxes until remitted to the IRS.
FUTA PayableA liability account for the Federal Unemployment Tax Act tax owed entirely by the employer; credited in the employer tax entry and zeroed out when deposited.
Payroll Tax ExpenseAn expense account debited in the employer payroll tax entry; equals the sum of the employer's share of FICA, FUTA, and SUTA taxes.
Tax Deposit EntryThe journal entry that debits all payroll liability accounts and credits Cash when taxes are remitted to the IRS or state, zeroing out the liabilities.
Reconciliation MemoA written document confirming that payroll liability account balances match the payroll register and have been cleared to zero after the deposit, forming part of the audit trail.

Worked examples4

1. Prepare the employee payroll journal entry for a payroll period with the following totals from the payroll register: Gross Wages $4,000.00; FIT Withheld $480.00; Employee Social Security Withheld $248.00; Employee Medicare Withheld $58.00; Health Insurance Withheld $120.00; Net Pay $3,094.00.
  1. Step 1 — Confirm the net pay: $4,000.00 − $480.00 − $248.00 − $58.00 − $120.00 = $3,094.00. Net pay checks out.
  2. Step 2 — Identify the debit: Wages Expense is debited for gross pay = $4,000.00.
  3. Step 3 — Identify all credits: FIT Withholding Payable $480.00; FICA Social Security Payable $248.00; FICA Medicare Payable $58.00; Health Insurance Payable $120.00; Net Wages Payable $3,094.00.
  4. Step 4 — Verify balance: Total credits = $480 + $248 + $58 + $120 + $3,094 = $4,000.00. Debits $4,000.00 = Credits $4,000.00. Entry balances.
Answer: Debit Wages Expense $4,000.00; Credit FIT Withholding Payable $480.00, FICA Social Security Payable $248.00, FICA Medicare Payable $58.00, Health Insurance Payable $120.00, Net Wages Payable $3,094.00. Total debits = Total credits = $4,000.00.
2. Using the same payroll, prepare the employer payroll tax journal entry. The employer Social Security rate matches the employee rate of 6.2% of $4,000.00, the employer Medicare rate matches 1.45% of $4,000.00, and FUTA is assessed at a net rate of 0.6% of $4,000.00 (assume all wages are under the FUTA wage base).
  1. Step 1 — Calculate employer Social Security: $4,000.00 × 0.062 = $248.00.
  2. Step 2 — Calculate employer Medicare: $4,000.00 × 0.0145 = $58.00.
  3. Step 3 — Calculate FUTA: $4,000.00 × 0.006 = $24.00.
  4. Step 4 — Total Payroll Tax Expense: $248.00 + $58.00 + $24.00 = $330.00.
  5. Step 5 — Record the entry: Debit Payroll Tax Expense $330.00; Credit FICA Social Security Payable $248.00, FICA Medicare Payable $58.00, FUTA Payable $24.00.
  6. Step 6 — Verify balance: Credits $248 + $58 + $24 = $330.00. Debits $330.00 = Credits $330.00. Entry balances.
Answer: Debit Payroll Tax Expense $330.00; Credit FICA Social Security Payable $248.00, FICA Medicare Payable $58.00, FUTA Payable $24.00. Total debits = Total credits = $330.00.
3. Post the FICA Social Security Payable amounts from both journal entries to a T-account, then record the tax deposit entry that clears this account. Show the ending balance.
  1. Step 1 — Open the T-account: FICA Social Security Payable (normal credit balance).
  2. Step 2 — Post from Entry 1 (employee share): Credit side $248.00.
  3. Step 3 — Post from Entry 2 (employer share): Credit side $248.00.
  4. Step 4 — Running credit balance before deposit: $248.00 + $248.00 = $496.00.
  5. Step 5 — Record deposit entry: Debit FICA Social Security Payable $496.00; Credit Cash $496.00.
  6. Step 6 — Post the debit to the T-account: Debit side $496.00.
  7. Step 7 — Calculate ending balance: Credits $496.00 − Debits $496.00 = $0.00. Account is cleared.
Answer: FICA Social Security Payable T-account: Credits $496.00 (two entries of $248.00 each); after the deposit debit of $496.00, ending balance = $0.00.
4. A bookkeeper posts the following to the FIT Withholding Payable T-account: Credit from employee payroll entry $480.00. When preparing the deposit entry, the bookkeeper mistakenly debits FIT Withholding Payable for only $408.00. What is the remaining balance, and what correcting entry is needed?
  1. Step 1 — Identify the credit balance posted: $480.00.
  2. Step 2 — Identify the debit posted in the incorrect deposit entry: $408.00.
  3. Step 3 — Calculate remaining balance: $480.00 − $408.00 = $72.00 credit balance remaining.
  4. Step 4 — The account should be zero after the full deposit. The shortage is $72.00.
  5. Step 5 — Correcting entry: Debit FIT Withholding Payable $72.00; Credit Cash $72.00 (to remit the remaining amount).
  6. Step 6 — After the correcting entry, T-account balance: $480.00 − $408.00 − $72.00 = $0.00.
Answer: Remaining balance before correction is $72.00 credit. Correcting entry: Debit FIT Withholding Payable $72.00; Credit Cash $72.00. Ending balance = $0.00.
In class: Using the payroll register completed in Lesson 6, prepare the two standard payroll journal entries (employee payroll entry and employer tax entry) in a general journal, correctly debiting wage expense accounts and crediting all liability accounts. · Post both journal entries to T-accounts representing each payroll liability account (FIT Payable, FICA Payable, FUTA Payable, Health Insurance Payable, Net Wages Payable) and calculate ending balances. · Simulate paying payroll taxes by recording the tax deposit journal entry, zeroing out the liability accounts, and writing a brief reconciliation memo confirming account balances are cleared before the deposit deadline.
Materials: General journal forms, T-account worksheets, completed payroll register from Lesson 6, chart of accounts reference, IRS deposit schedule guidance from Publication 15, calculators
Check: Journal entries and T-account balances reviewed against answer key; all debits must equal all credits, and every liability account balance must match the register totals. Pass = 90% of dollar amounts correct with balanced entries.

Practice check8

Answer each question, then check it. Nothing is recorded; this is your own practice.

AIPB Certified Bookkeeper — Payroll
1. Which account is debited in the employee payroll journal entry?
AIPB Certified Bookkeeper — Payroll
2. After both standard payroll journal entries are posted but before any deposits are made, the FICA Social Security Payable account should contain a balance equal to:
AIPB Certified Bookkeeper — Payroll
3. FUTA tax is credited in the employer payroll tax entry. Which of the following correctly describes who bears this tax?
AIPB Certified Bookkeeper — Payroll
4. A bookkeeper records a payroll tax deposit by debiting all payroll liability accounts and crediting Cash. After this entry, what should the balance in each payroll liability account be?
AIPB Certified Bookkeeper — Payroll
5. A bookkeeper records gross wages of $6,000, employee FIT withheld of $720, employee Social Security withheld of $372, employee Medicare withheld of $87, and health insurance withheld of $200. What is the correct credit to Net Wages Payable?
QuickBooks Certified User — Accounting Concepts
6. In a general ledger T-account, liability accounts such as FIT Withholding Payable have a normal balance on which side?
AIPB Certified Bookkeeper — Payroll
7. IRS Publication 15 governs the schedule for payroll tax deposits. Why is it important for a bookkeeper to verify the current deposit schedule classification each year?
AIPB Certified Bookkeeper — Payroll
8. A reconciliation memo prepared after the payroll tax deposit should confirm which of the following?
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