Explain payroll to the general ledger

What you will practice

• Build a balanced simplified payroll journal.
• Distinguish expense, liability and payment.
• Explain accrual and reversal without double counting.

Start with the event

In a simplified accrual-accounting exercise, payroll expense records compensation earned, while employee withholdings are liabilities until remitted. Paying those liabilities later is not a second wage expense. Employer taxes add a separate employer expense and liability.

Build the bridge

Reconcile payroll-register gross to wage expense, employee deductions to liabilities, and net pay to the funding amount. Add employer costs separately. Use department and cost-center detail only after establishing that the company total balances. A balanced journal can still have a wrong account or department.

Read an accrual and its reversal together

A period-end accrual estimates expense earned but not yet included in a posted payroll. A documented reversal can prevent the next payroll posting from duplicating that expense. The appropriate policy and entries depend on the exercise facts; do not assume every accrual reverses automatically.

Reconcile the liability rollforward

Opening liability plus new amounts withheld or accrued minus payments and approved adjustments should explain the closing liability. Investigate an old balance by source, period and payee. A remaining balance is not automatically an expense or a refund to an employee.

Review before you move on

• Separate wage expense and employer expense.
• Match employee withholdings to liability accounts.
• Reconcile cash funding to the register.
• Explain every opening-to-closing liability movement.

Official references for this lesson

• Official CPP accounting domain
• Official detailed CPP KSA outline
• IRS employment-tax overview