Accounting for Payroll is a
major task in Book Keeping. What do you need to post as a Payroll Officer?
In this article, I have listed the major Accounts that are affected by Payroll
and the various Entries to be made in the System.
ACCOUNTS AFFECTED BY
PAYROLL
- Salaries & Wages
- Pension Payable
- Paye Payable
- Staff Account
- Salary Payable
- Cash & Bank Accounts
The big question is this;
"How do all these connect to the Payroll? First of all, your Payroll is
made up of the following items (depending on the structure of your
Organization's Payroll); Basic, Housing, Transport, Utility, Entertainment,
Overtime, Leave & Other Allowances. The Addition of all these sums up to
the Gross Salary of a Staff. The Total Gross Salary of the Organization is
posted to "Salaries & Wages" under the Profit or Loss Accounts
(Income Statement). This is posted irrespective of if the Salaries were paid
immediately or not (Accruals Basis).
In most cases, the Gross
Salary is not paid to the Staff. There are some deductions that could reduce
the Gross Salary depending on the Organization. Some of these Deductions
include but not limited to; PAYE,
PENSION (Employee Contribution), NHFC (National Housing Fund Contribution),
Loan & Other Staff Deductions. The Net balance after all these deductions
is the Net Salary.
PAYE DEDUCTIONS
Paye deductions are posted
to "Paye Payable" under Current Liabilities and appears in the
Statement of Financial Position (Balance Sheet).
PENSION DEDUCTIONS
(Employee Portion)
Pension deductions are
posted to "Pension Payable" under Current Liabilities and appears in
the Statement of Financial Position (Balance Sheet).
NHFC DEDUCTIONS
NHFC deductions is posted
to "NHFC Payable" under Current Liabilities and appears in the
Statement of Financial Position (Balance Sheet).
STAFF LOAN/SALARY
ADVANCES/STAFF ADVANCES
These deductions are made
from the Gross Salary if; there were Loans given to a staff of which monthly
deductions are being made to offset the loan, a Salary Advance was made to a
staff before the Payroll was prepared and approved and if IOUs were to be
retired from Payroll. Staff Deductions are posted to "Staff Accounts"
undercurrent Assets and appears in the Statement of Financial Position
(Balance Sheet).
NET SALARIES &
WAGES
This is the Net Pay from
the Gross Salary after all the above deductions are made. Net
Salaries & Wages are posted to "Salary Payable" under
Current Liabilities and appears in the Statement of Financial Position (Balance
Sheet).
ACCOUNTING ENTRIES
To Properly Account for
your Payroll, Post the following into the System;
- WHEN PAYROLL IS APPROVED FOR
THE MONTH.
Dr. Salaries & Wages
(With Gross Salary)
Cr. Paye Payable (With
Amount of Tax Deduction)
Cr. Pension Payable (With
Amount of Employee Portion)
Cr. NHFC Payable (With
Amount of Deductions Made)
Cr. Staff Accounts (With
Amount of Deductions)
Cr. Salary Payable (With
Net Pay)
- WHEN PAYMENTS ARE MADE TO STAFF
Dr. Salary Payable (With The amount that was paid)
Cr. Cash or Bank Accounts
(With Amount that was paid)
- WHEN PAYE/PENSION/NHFC
REMITTANCES ARE MADE
Dr. Paye Payable (With The amount that was Remitted
Dr. Pension
Payable (With Amount that was Remitted)
Dr. NHFC Payable (With The amount that was Remitted)
Cr. Cash or Bank Accounts
(With Amount that was Remitted)
I hope this article was helpful. For more details on the issue of Payroll Accounting, kindly contact us.
Get our Free Payroll Template1 on Item No 1.
ALSO, READ PAYE TAX IN NIGERIA
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