Offset Journal Entry for Accrued Payroll

Payroll is the process by which employers calculate and pay their employees’ wages. The payroll process typically involves four key steps: calculating hours worked, withholdings, gross pay, and net pay.

In order to calculate hours worked, employers must keep track of when their employees start and end their shifts. Withholdings refer to the deductions that are taken out of an employee’s paycheck, such as taxes and insurance premiums.

Gross pay is the total amount of an employee’s wages before any deductions are made. Finally, net pay is the amount of an employee’s wages that is actually deposited into their bank account after all deductions have been made. Payroll can be a complex and time-consuming process, but it is essential for ensuring that employees are paid correctly and on time.

The company has to record expenses even if the payment is not yet made. Recording payroll expense is an important task for any company, and accruing payroll expenses can be even more complex. While paychecks are usually expected to reflect work done in the current period, sometimes companies may need to record payroll expenses even before they actual payment.

This could include payment expectations based on the contract or agreement, or it could involve flexibility around the timing of payments made to employees. Accruing payroll expenses help ensure that company records remain accurate and up-to-date, which reflects on the proper financial statement.

At the end of the month, the company needs to make an accrued journal entry to record expenses on income statement. The accrued journal will require to offset (reverse) at the beginning of the new month.

Journal Entry to Offset Accrued Payroll

The company record accrued payroll when the employees have performed the work but not yet make payment. So they have to make accrued to record expenses on income statement and liabilities on the balance sheet.

The journal entry is debiting payroll expense and credit accrued liability.

Account	Debit	Credit
Payroll Expense	XXX
Accrued Liability		XXX

The journal entry will increase payroll expense on income statement and accrued liability on the balance sheet.

At the beginning of the new accounting period, the accountant has to reverse the accrued entry which will eliminate the transaction. It is simply the opposite journal entry that reveres the previous entry.

The journal entry is debiting accrued liability and credit payroll expenses.

Account	Debit	Credit
Accrued Liability	XXX
Payroll Expense		XXX

Example

Company ABC has prepared accrued payroll expense amount $ 20,000 which is not yet paid to the employees. The entry is recorded at the end of the month. At the beginning of new month, the company reverse the accrued payroll and make a payment of $ 20,000 to the employees. Please prepare journal entry to offset accrued payroll.

At the end of the month, ABC should record accrue payroll. The journal entry is debiting payroll expense $ 20,000 and credit accrued liability $ 20,000.

Account	Debit	Credit
Payroll Expense	20,000
Accrued Liability		20,000

Next month, company needs to offset the accrued payroll by debiting accrued liability $ 20,000 and credit payroll expense $ 20,000.

Account	Debit	Credit
Accrued Liability	20,000
Payroll Expense		20,000

The entry will remove accrued liability from the balance sheet, and it also records payroll expenses on the credit side.

When company makes the payment, the accountant needs to record payroll expense $ 20,000 and cash paid $ 20,000.

Account	Debit	Credit
Payroll Expense	20,000
Cash		20,000