income tax, unemployment tax and worker compensation insurance. There are also paid benefits extended to employees such as vacations, holidays, sick days, health insurance, profit-sharing plans and retirement plans.
The tricky part about getting used to payroll accounting is that expenses don’t always line up with revenues chronologically. Expenses are often incurred in a different accounting period than when they are paid.
The matching principle is used to help tie expenses to revenue. When these things don’t occur in the same accounting period, the expense should appear on an income statement for the accounting period that it was incurred during.
Salaries and wages are obviously a big part of payroll accounting. Wages are figured by multiplying the number of hours worked by the hourly rate that the employee earns. Salaries, on the other hand, are yearly amounts, before taxes and other things are withheld, that will be broken up into equal amounts and paid out usually twice monthly or bi-weekly.
Companies are responsible for collecting social security taxes. This is a very big part of payroll accounting and also where accounting software can really come in handy. There are other nuances about social security that make solid accounting software attractive. Since social security is both withheld from employees and also matched by employers, accounting is a little trickier.
Employers are also required to withhold federal income tax that employees are estimated to owe. There are also other types of withholdings such as union dues, insurance premiums, and charitable contributions that may fall into this category.
With a little bit of education you’ll be able to decide which portions of payroll accounting need to be implemented in your circumstances. There are some excellent accounting education resources online. Take a look at http://accountingcoach.com for some nice lessons and tutorials surrounding accountancy.
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