Streamlining your Payroll to Accounting Handoff for your "General Ledger"

The Payroll Processing Cycle

The payroll process drives major changes to the general ledger each pay period. By ensuring that the underlying paperwork, changes and calculations are all accounted for, the books will accurately reflect the payroll and factor it into other processes.

There are several steps to take in setting up your payroll accounting in the general ledger. One of the most important steps is to set up your payroll accounts in your chart of accounts. These accounts help you track various payroll expenses. These accounts should include the following:

• Gross wage expenses
• State income tax payables
• Federal income tax payables
• Employee FICA tax payables
• Wages payables
• Health insurance payables
• Vacation or PTO payables

There may be additional accounts based on your business structure.

There’s another important step to take with each employee. Data collection begins at the moment an employee begins working. Payroll or HR must collect important documents that reflect work eligibility, tax deductions, and benefit selections (and payroll deductions). The details from these documents must be entered into your payroll system to ensure accurate pay.

The main steps of the cycle as they relate to the general ledger. Each will have amounts to be recorded on the corresponding ledger accounts you created.

• Net Pay. Each payroll period, the business must aggregate the wages and salaries paid to employees and freelancers. The payroll details are entered as journal entries in the general ledger. Net pay starts with gross employee payments, subtracting withholdings for taxes (federal, state and local), Medicare and Social Security, and benefits.
• Payments. You will then need to pay your employees, either via paper checks or direct deposits.
• Tax Reporting. Payments must be made to the IRS and state departments of revenue. Other entities receive payments for state unemployment payments, retirement plan contributions, and Medicare and Social Security payments.
• Account for Payables. You may have incurred payroll expenses that have not yet been paid. These are considered liabilities or payables. Record these payables in your general ledger and then, once paid, create additional entries to reflect the payments.

Tips for Ensuring Accurate Payroll in General Ledger Accounts

When you run a business, you want to pay attention to some common pitfalls that can derail your payroll and general ledger processes. Here are a few things to be aware of.

1. Managing Employee Changes

There will inevitably be changes in employee information that affects your payroll. The types of changes can be as simple as an address change or addition of a new family member. They can also involve changes in benefits (and the related withholdings), salary or wage rates.

There will also be changes to who is on the payroll, with workers coming and going.

Each of these changes will have an impact on your general ledger. Every pay period, you need to ensure these changes are reflected to ensure accurate general ledgers.

2. Checking for Accuracy

One of the most important things you need to do each pay period is to check and verify the payroll and general ledger entries. You should double-check the records in both systems to ensure accuracy.

Verify, for example, the amounts you’ve entered on the general ledgers and ensure they match what’s in your payroll records. Be sure that debits equal credits. If there’s an imbalance, go back and find the discrepancy, ideally before you finalize payroll and issue payments.

One suggestion – create a checklist and a schedule that prompts you to check for discrepancies and any changes to payroll information. The checklist should also indicate what and how to make changes to the general ledger to reflect any changes to your payroll.

3. Integrate Early

If your payroll and general ledger systems are not well integrated, act now. Getting systems organized earlier in the year alleviates some of the challenges that come with busy year-end processing and reporting about the organization’s finances.

4. Back It Up

You want to be sure there are redundancies in place to ensure that your payroll is on track, even if data are lost or corrupted. Employees will still demand to be paid and you want to be sure you have backup systems in place to ensure payroll processes.

How to Integrate Your Payroll and General Ledger

At Exact Payroll, we help businesses of all sizes and types to smoothly organize their payroll and general ledger. Our solution allows your accounting team to post payroll entries to quickly post payroll entries to QuickBooks® and sixty-two other popular accounting programs. We offer paper and electronic reports that reduce data entry time and errors with easy imports that allow for partial accruals of pay periods and simpler year-end accounting.

Contact us today to discuss your payroll and general ledger needs.