B2: 1.06 Payroll journals illustration

Details of a business’ payroll for the last month are as follows:

Gross wages£26,987
PAYE income tax£3,844
Employees’ NI£1,793
Employees’ pension contributions£644
Employer’s NI£1,985
Employer’s pension contributions£214
Other deductions£50

The journals to record the above information are detailed below.

Step 1 Recording the total cost of the payroll

The payroll cost for this example is £29,186 which is calculated as the total of the gross pay (£26,987) , the employer’s NI (£1,985) and the employer’s pension contributions (£214).

AccountDebitCredit
Wages expense£29,186
Wages control£29,186
Journal to record the payroll cost for the month

Step 2 Move the amount payable to HMRC out of the Wages Control a/c

The total payable to HMRC for the month is £7,622 which is calculated as the total of PAYE income tax (£3,844), employees’ NI (£1,793) and employer’s NI (£1,985).

AccountDebitCredit
Wages control£7,622
HMRC£7,622
Journal to move the amount payable to HMRC for the month from the Wages Control a/c to a HMRC a/c

Step 3 Move the amount payable to a Pension Fund out of the Wages Control a/c

The total payable to Pension Funds is £858 which is calculated as the total of employees’ pension contributions (£644) and employers’ pension contributions (£214).

AccountDebitCredit
Wages control£858
Pension fund£858
Journal to move the amount payable to pension funds from the Wages Control a/c to a Pension Fund a/c

Step 4 Move the Other Deductions out of the Wages Control a/c

AccountDebitCredit
Wages control£50
Other deductions£50
Journal to move other deductions for the month from the Wages Control a/c to an Other Deductions a/c

Entries in the General Ledger accounts

The above journals would be recorded in the General Ledger accounts as show below.

As payments are made to employees we will post the amounts to the debit side of the Wages Control account (and to the credit side of the Bank or Cash account). Payments to HMRC will be debited to the HMRC account, payments to the pension fund(s) will be debited to the Pension Fund account and so on.

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