Payroll Clearing (Wages Payable) Ledger Account
What is payroll for an employee doing to the general ledger.
The following example explains the general ledger posting for a single paycheck and defines each line of the entry. Figure 1 is an image created to aid in the understanding of how the program posts to the General Ledger. It is not a screen capture within the program. The reporting section of the program can provide additional information on affects to the Ledger.
Example
An Employee earned Income of 1000.00 in a pay period. He has the basic Federal and Provincial tax credit (for income tax), is not exempt from CPP or EI, and has only one other deduction for health insurance. All calculations will occur, and the following journal entry will be created, although not visible unless you look into the ledger.
Each entry to a ledger account has a corresponding offset to the Wages Payable account. This Wages Payable (Payroll Clearing) account acts as a clearing account allowing each ledger entry to clear to this account, leaving a balance in the account representing the Net Paycheck amount.
Explanation of each entry:
- The wages of 1000.00 is expensed and the opposing entry to balance it is a credit to wages payable.
- CPP Payable Employee represents a 50.00 deduction from the employee's paycheck by crediting the liability account CPP Payable. The opposing entry is a debit to wages payable.
- CPP Payable Employer represents the Employer contribution to CPP along with the employees portion in the acct CPP Payable. Its opposing entry is a debit to Wages payable.
- CPP expense represents the Employer contribution to CPP again, but is now recording the expense to the Company. the opposing entry is a credit to Wages Payable.
- EI Payable Employee represents a 50.00 deduction from the employees paycheck by crediting the liability account EI Payable. The opposing entry is a debit to wages payable
- EI Payable Employer represents the Employer contribution to EI along with the employees portion in the acct EI Payable. Its opposing entry is a debit to Wages payable.
- EI expense represents the Employer contribution to EI again, but is now recording the expense to the Company. The opposing entry is a credit to Wages Payable.
- Income Tax Payable represents a 100.00 deduction from the employees paycheck by crediting the liability account Income tax payable. Its opposing entry is a debit to Wages payable.
- Health Insurance Payable represents a 20.00 deduction from the employees paycheck by crediting the liability account Health Ins Payable. The opposing entry is a debit to Wages Payable.
- Bank represents the Net pay for the employee and the opposing entry is a debit to Wages payable
This is a balanced entry meaning debits equal credits in both columns. the posting to various liability and expense accounts will always clear to Wages Payable. Wages Payable will always be balanced as you see equal credits and debits are being posted to this single account.
See also: Default Ledger Accounts