How to Prepare a Payroll Journal

Introduction

• Focus of this session: Preparing a payroll journal
• Common questions: What goes on debit vs. credit side and why?
• Aim: To simplify understanding and preparation of payroll journals.

Key Concepts

Gross Salary

• Amount: £5,000
• Entry: Debit
• Reason: Cost to employer; recorded in Profit & Loss (P&L)/Income Statement (IS)

Employer's PRSI Contribution

• Amount: £600
• Entry: Debit
• Reason: Cost to employer; recorded in P&L/IS

Employer's Pension Contribution

• Actions:
  • Record cost to employer
  • Record liability to pension provider
• Amount: £150
• Entries:
  • Debit: Employer cost in P&L/IS
  • Credit: Liability on Balance Sheet/Statement of Financial Position

Employee Deductions (e.g., Purchased Holidays)

• Entry: Credit
• Reason: Deduction from employee, not a cost to employer

PAYE (Pay As You Earn)

• Amount: £1,000
• Entry: Credit
• Reason: Amount due to HMRC; includes both employee and employer deduction

Other Taxes

• Amount: £500
• Entry: Credit
• Reason: Amounts owed to HMRC

Net Wages

• Entry: Credit (Balance Sheet/Statement of Financial Position)
• Reason: Amount due to employee until paid
• Note: Should zero out monthly unless unpaid wages exist

Pension Contributions

• Total Amount: £400 (Employee + Employer)
  • Employee: £250
  • Employer: £150
• Entry:
  • Credit: Amount due to pension provider
  • Debit: Pensions and Credit to bank when paid

Summary

• Ensure net wages and pension contributions are cleared timely (monthly/weekly)
• Monitor accounts regularly to maintain accuracy
• Importance of understanding entries for accurate financial reporting

Conclusion

• A brief video to provide clarity on payroll journal preparation
• Invitation to like, subscribe, and follow for more content