Recording payroll in the books
JE-11 posts $8,400 of wages against $1,692.60 withheld and $6,707.40 paid; AJE-4 adds $642.60 of employer FICA; the October deposit clears the liability.
A payroll posts as two entries, both read off the register. On payday, gross wages are the expense, split between what reached the employees and what was withheld for the government. At month end, the employer's own taxes are an expense of the same wages. Between them, payroll liabilities holds everything owed until it's deposited.
September payroll of $8,400 gross is paid, less the tax withheld from it.
| Account | Debit | Credit |
|---|---|---|
| 6000Payroll expense | 8,400.00 | |
| 2100Payroll liabilities | 1,692.60 | |
| 1000Cash — operating | 6,707.40 | |
| Balanced | 8,400.00 | 8,400.00 |
Payroll expense is the gross wage — what the staff earned — not what reached their bank accounts. Northwind withheld their federal income tax and their 7.65% share of Social Security and Medicare, and that money belongs to the Treasury: it is a liability until it is deposited, not a cost Northwind avoided. Consumed in September and mostly paid in September — which is exactly why it is easy to believe cash and accrual always agree.
Northwind's own share of Social Security and Medicare on September's wages: $642.60.
| Account | Debit | Credit |
|---|---|---|
| 6100Payroll tax expense | 642.60 | |
| 2100Payroll liabilities | 642.60 | |
| Balanced | 642.60 | 642.60 |
The employer matches its staff's Social Security and Medicare out of its own pocket — 7.65% of the gross wage — and that is a cost of September's wages in its own right. Nobody sends a bill for it: it is worked out at month end and deposited with the withholding in October. Unlike the withholding, this part is Northwind's own expense. Federal and state unemployment taxes are employer costs too; this course keeps them out of September's book and accrues them in the payroll track.
JE-11 and AJE-4: September's payroll, as the book posts it.
After AJE-4, 2100 carries $2,335.20 at September 30 — exactly the federal deposit due on October 15, 2026. That's the tie-out at every close: the liability equals the register's undeposited tax, and nothing older is in it. The October deposit clears it, and the FUTA accrual the lesson on employer taxes added stays in 2100 until Form 940 is paid.
2100Payroll liabilities
| Debit | Credit |
|---|---|
| JE-111,692.60 | |
| AJE-4642.60 | |
| Total0.00 | Total2,335.20 |
Balance 2,335.20 on the credit side — the difference between the two columns.
EFTPS deposit for September wages
| Account | Debit | Credit |
|---|---|---|
| 2100Payroll liabilities | 2,335.20 | |
| 1000Cash — operating | 2,335.20 | |
| Balanced | 2,335.20 | 2,335.20 |
October 15: the federal deposit clears 2100.
When the pay period crosses the month end
Northwind pays the whole month on the 25th, so September's wages are all in September. A company that pays every two weeks has a pay period straddling most month ends. The days already worked are the closing month's expense and an accrued liability, even though payday is next month — accrued at the close and reversed on the first, before the payroll posts.
Wrong
Dr Payroll expense 6,707.40 / Cr Cash 6,707.40 — the bank debit, as one line.
Right
Dr Payroll expense 8,400 / Cr Payroll liabilities 1,692.60 / Cr Cash 6,707.40.
The expense is what the staff earned. What reached their banks is only part of it.
Post from the register, clear from the bank
- Good at
- Gross, withholding and employer tax each land where they belong
- 2100 proves itself against the deposits every month
- Watch for
The provider's debits have to be matched to the entries — net pay one day, taxes another
- Best for
- Any company with a payroll register to post from
Expense each bank debit as it clears
- Good at
Quick from a bank feed
- Watch for
- Wages understated by the withholding, employer taxes buried or missed
- No liability, so a missed deposit is invisible
- Best for
- No one
Payday: debit gross wages, credit withholding to payroll liabilities and net pay to cash. Month end: debit the employer's taxes, credit payroll liabilities. The deposit clears the liability, and the liability always ties to the register.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Anything marked as a convention is ours, not the rule-maker's.
- Tax — not GAAP
- IRS Publication 15 (2026), Circular E — Introduction (opens in a new tab)Withheld payroll taxes are the government's money, held in trustFree to read
- IRS guidance
- IRS Pub. 15 (2026), What's New (opens in a new tab)Social Security and Medicare tax for 2026PDF · Free to read
- IRS Pub. 15 (2026), §14 (opens in a new tab)FUTA for 2026: 6.0% of the first $7,000, 0.6% after the state creditPDF · Free to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Payroll liabilitiesWhat an employer owes on wages it has already paid — the income tax and the employees' share of Social Security and Medicare withheld from their pay, plus the employer's own payroll taxes — until it is deposited with the government. The withheld part was never the employer's money: IRS Pub. 15 calls it trust fund taxesConvention
- Payroll registerThe record of one payroll run, a row per employee: gross pay, each withholding, net pay and the employer's taxes, footed. The subledger the payroll journal entries summarize, and what each Form 941 is reconciled toConvention
- Accrued liabilityAn obligation for goods or services received but not yet invoiced or paid — wages, interest, professional fees — recorded by an accrual
- Gross payWhat an employee earned for the pay period before anything is withheld — salary, or hours times rate, plus overtime, bonuses and commissions. Payroll expense in the books is the gross, not what reached the bank
- Net payGross pay less every withholding — income taxes, the employee's Social Security and Medicare, benefit deductions — and so what reaches the employee's bank. Always the remainder, never a separately computed figureConvention
In the founder glossary
This lesson’s ideas, explained for the founder running the company. Each has an entry in the founder glossary.
See also
- Journal entry balancerPaste an entry, see what it's out by, and copy the lines back out.
- Journal entry for payrollOn payday, debit Wages and salaries for gross pay, credit Cash for net pay and credit liabilities for everything withheld. Book the employer's own taxes separately (debit Payroll tax expense, credit Payroll taxes payable), and clear both payables when they are remitted.
- Journal entry for accrued wagesAt month-end, debit Wages and salaries and credit Accrued wages for the days worked since the last payday. On payday, reverse the accrual or debit Accrued wages for the part of the payroll it covers.
- Accrued expenses vs accounts payableBoth are liabilities for costs already incurred. If the vendor's invoice has arrived and been approved, the cost is in accounts payable. If it hasn't, the month-end estimate is an accrued expense.
- Payroll journal entries, from gross to netGross wages, employer taxes, withholding and net pay as journal entries: what each payroll run books, how to accrue it at month end, and where benefits go.
- JournalEntryDebit and credit as two columns. No signed-column variant.
- AccountRegisterGL detail with a running balance.