Hi guys, welcome back to the channel. In today's video I'm going to show you very quickly how to prepare a payroll journal. So I've had a lot of questions this week in particular just how to go about preparing this, what goes on the debit side, what goes on the credit side and why. So a lot of times I know in the study manuals that you have or if you've ever seen a payroll journal before it looks really scary and they don't really go into that amount of detail as to why things are a debit and a credit, you've just really got to learn how to prepare one. So I'm going to give you that background so that you don't worry anymore and you can see just how simple one of these payroll journals are to prepare.
So we've been given this information down here and the first thing I always start with when I'm preparing a journal for payroll is the gross salary. So down here we've got gross salary of £5,000 for our employees. So what we want to do is post that as a debit so as a cost into the P&L or the income statement.
So if I just put P&L stroke IS there you can see and the reason why that is a positive is because it's a cost so it's a cost to the employer for the gross salary for that employee or employees and we want that to go on the income statement to reduce our overall profit. Next I would look at posting and the employer's PRSI contribution so that's just PAYE and pay related social insurance so again that is a cost that needs to go into the P&L or the income statement so that's 600 pounds and then we move on to employer's pension so if you think about employer's pension two things need to happen so we need to record the cost to the employer and we also need to record the amount that's a liability to the pension provider so say if you've got your pension with nest or it's with Scottish widows or somebody else then we need to show it as a liability until it's been paid. So what we're going to do is we're going to debit here with £150 and we're going to credit pension in the balance sheet or statement of financial position. let's change that to capital so that's all those three there now other deductions so you might have a case where employees have purchased holiday for instance so you can sometimes pay for that through your payslip and you can say I want to buy you know five holidays in the year so what the employer will do is deduct that from your pay every month they'll spread that over the course of the year so we've got holiday that's been purchased here in this scenario and that's going to be a credit because that there is a deduction from the employee so it's not a cost to the employer it's a deduction from the employee's payslip so moving on we want to work out the um pye so total tax that has been deducted so that's these this 1000 pounds here so that again is on the balance sheet or statement of financial position as a credit and the reason it's a credit is because it's an amount due to HMRC for PAYE, so pay as you earn tax.
So that's going to be the employees and employers as well, so let's just box that off. Now in this case there are other taxes that need to be paid to HMRC and that's going to be a credit again, this is that £500 down there and again it's a credit because it's amounts owed to HMRC. And then we've got net wages. So net wages again is going to be a credit on the balance sheet or statement of financial position and the reason for that is because it is an amount due to the employee. So it's a credit to wages until that amount has been paid by the employer to the employee.
So it's going to sit on here in net wages until the payment is made and once that payment is made it's going to be a credit to the bank and a debit to net wages so what you should see if you're somebody looking at a set of accounts is that every month that net wages total should go back to nil unless there is wages due to employees that hasn't yet been paid which shouldn't really be the case because they'll be paid either monthly or weekly so it should clear itself down weekly or monthly Finally we've got this pension of £400 so that is going to be the employees and the employers pension contribution. So we've already put £150 up here for the employers so what we need to do is £250 for the employees and the £150 for the employers. So again the reason why that is a credit is because that's an amount due to the pension provider so again whether that be, I don't know, Scottish Widows or Nest or whoever, the employer is going to take that from the employee's payslip and pay that over with their own contributions in effect. So when they do, that's going to be a debit, pensions and a credit to the bank. And again, that's something if you're working in practice or even industry that you want to be making sure is being cleared monthly or whenever they do make contributions to their pension provider so i'm going to keep this video short and sweet for you but as always if you found it useful or you liked the video then do give it a thumbs up consider subscribing as always and i shall see you on the next video