A credit to cash reduces the balance in the cash account.ĥ0.00When it comes time to pay the payroll payable such as FICA and Federal Income Tax Payable, you would simply debit the payable accounts you are paying and credit cash. A credit to the account of payroll payable increases the amount of payroll liability for the company. When you pay the employee, you no longer owe wages, so your liabilities decrease. These amounts have already been included in your employees’ gross wages. When calculating your payroll expense, don’t include amounts that you take out of employee paychecks, even if you remit these amounts to third parties such as health insurance providers. If you contribute to your employees’ health care plans or make contributions to their retirement funds, then these payments are part of overall expenditures on your workforce or payroll expense. As a small business owner, you use payroll journal entries to record payroll expenses in your books. Debit the wages, salaries, and company payroll taxes you paid.

Since your company did not yet pay its employees, the Cash account is not credited, instead, the credit is recorded in the liability account Wages Payable.īecause they are paid amounts, you increase the expense account. As noted earlier, expenses are almost always debited, so we debit Wages Expense, increasing its account balance. Hiring employees to meet labor demands is a special kind of business transaction that has its own monetary terms.

Expense meaning