General Accounting Interview Question:

What is payroll?

Submitted by: Administrator

Payroll deals with paying your employees (including seeing that the government gets the monies they require you to withhold from the employees and the payroll taxes they require you to pay).

If you have occasional employees, or even one or two full- or part-time, you can get by recording the payroll transactions in the General Journal. The typical transaction is <date> <cash / amt- labor-expense / amt+... withholding / amt-... accrued-tax / amt-... tax-expense / amt+...> <comments>, where <comments> include who you paid and the hours they worked. Labor-expense, withholding, accrued-taxes, and tax-expense include multiple accounts as we'll get into below.

If you have more than a couple of employees it definitely pays to set up a Payroll system.

A Payroll system involves a Payroll Journal — in which payroll is accrued, i.e., held in an "owed" state (like an open vendor invoice) until paid, and a Payroll Disbursements Journal — in which the actual payments to the employees are recorded.
Submitted by: Administrator