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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4545
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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What should the end of financial year journal entries be off

Customer Question

What should the end of financial year journal entries be for closing off payroll when using a separate payroll program when you are working under accruals? ie weekly I debit Wages & Salararies as well PAYG & credit the chq a/c. Super is only debit once a month and the opposing credit is against the chq a/c.
So what accounts should I be utilising to close off for eof under accruals... for eg total wages for the year 650 000.00 & Super 75000.00
Submitted: 1 year ago.
Category: Finance
Expert:  Rakhi Vasavada replied 1 year ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

The primary journal entry for payroll is the summary-level entry that is compiled from the payroll register, and which is recorded in either the payroll journal or the general ledger. This entry usually includes debits for the direct labor expense, salaries, and the company's portion of payroll taxes. There will also be credits to a number of accounts, each one detailing the liability for payroll taxes that have not been paid, as well as for the amount of cash already paid to employees for their net pay. The basic entry (assuming no further breakdown of debits by individual department) is:

Direct labor expense DR
Salaries expense DR
Payroll taxes expense DR

TO Cash
Federal withholding taxes payable
Social security taxes payable
Medicare taxes payable
Federal unemployment taxes payable
State withholding taxes payable
State unemployment taxes payable
Garnishments payable

As I understand, you use ACCRUAL Method.

Accrued Payroll Journal Entry

It is quite common to have some amount of unpaid wages at the end of an accounting period, so you should accrue this expense (if it is material). The accrual entry, as shown next, is simpler than the comprehensive payroll entry already shown, because you typically clump all payroll taxes into a single expense account and offsetting liability account. After recording this entry, reverse it at the beginning of the following accounting period, and then record the actual payroll expense (as just described under the "Primary Payroll Journal Entry" section whenever it occurs.

Direct labor expense DR
Salaries expense DR
TO Accrued salaries and wages
Accrued payroll taxes

Note that if you find it little difficult or confusing, it is better if you seek help of a local accountant.

I am sure this would help.

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Warm Regards,