Payroll Journal Entries – Part 1

This article will be part of a series of articles dealing with the matter of posting payroll expenses and liabilities in your books via journal entries.

Part 1 will specifically address recognizing 401(k) employee deductions and the corresponding company contributions and liabilities in your books via journal entries.

So, to get started, let’s say your company has five employees and all employees are part of a company 401(k) retirement plan. Each employee has pre-tax dollars deducted from their paychecks and there is a corresponding 50% company match to each employee’s retirement plan (for this paycheck).

You just processed payroll for the upcoming pay date and thus the moneys for the net wages were taken out of your bank account. However, you still need to recognize the following for the 401(k) portion of the payroll:

• Employee Deductions – These are simply going to be gross wage expenses in your books because it is from the employees’ wages that the employee share of the 401(k) moneys were taken out from.
• Company Match – These will be recognized as 401(k) expenses in the company’s books because it is the company that pays for this portion of the employees’ retirement plans.
• 401(k) Liabilities – These will be booked as a liability in your company’s books. These liabilities will total BOTH the employee deductions and company contributions.

So, now let’s post that journal entry:

Note: Each employee had $100 deducted for their 401(k) plan and the company contributed $50 to each plan.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.