Payroll journal entries

What Are Payroll Journal Entries?

Payroll journal entries are accounting records that document all financial transactions related to payroll in a business. These entries are posted in the general ledger and reflect wages paid, taxes withheld, superannuation contributions, deductions, and employer liabilities.

Payroll journal entries serve as the official financial trail of how payroll expenses are recorded, ensuring accuracy in financial statements and compliance with Australian accounting standards, the Fair Work Act 2009, and ATO requirements.

Why Are Payroll Journal Entries Important?

Accurate payroll journal entries ensure:

• Clear visibility of employee compensation expenses
• Compliance with financial reporting and audit standards
• Proper accrual and allocation of payroll liabilities (e.g., superannuation, taxes)
• Smooth reconciliation between payroll software and accounting systems
• Better forecasting and financial planning

Incorrect payroll entries can lead to misstated financial statements, compliance issues, and tax errors.

Key Components of a Payroll Journal Entry

Each payroll journal entry includes several key elements that reflect both the employee's earnings and the employer's obligations.

Example of a Payroll Journal Entry

Let’s say your business processes payroll for an employee with the following:

• Gross wages: $2,000
• PAYG withholding: $400
• Superannuation: $220
• Net pay: $1,600

Accrual Entry (when payroll is recorded):

Payment Entry (when payment is made):

This separation allows employers to track wage liabilities and distinguish between payroll that has been processed versus paid.

Types of Payroll Journal Entries

1. Accrual Journal Entries

Used when wages are earned but not yet paid. This is common for accounting periods that end before a pay cycle.

2. Cash Journal Entries

Posted when employees are actually paid. It clears the liabilities accrued in the earlier entry.

3. Adjusting Journal Entries

Used to correct errors, allocate overtime, or include back pay or bonuses missed in a previous pay run.

4. Reversing Entries

Used at the beginning of a new accounting period to reverse an accrual made in the prior period (to avoid double counting when payroll is actually paid).

Payroll Journal Entries and Accounting Software

Modern payroll systems like Microkeeper integrate directly with accounting software (e.g., Xero, MYOB, QuickBooks), streamlining payroll journal entries by:

• Automating posting of pay runs to the general ledger
• Mapping each payroll component to the appropriate chart of accounts
• Ensuring correct application of superannuation, leave accruals, and PAYG withholding
• Minimising manual entry errors

Explore Microkeeper’s Payroll + Xero integration

Best Practices for Payroll Journal Entries

• Reconcile payroll accounts with bank statements and pay slips regularly
• Audit entries quarterly to ensure leave accruals, super, and deductions are accurate
• Use consistent account naming conventions across payroll and accounting systems
• Keep backup documentation (e.g. payslips, payment summaries, super reports)
• Ensure payroll staff are trained in basic accounting principles

Common Mistakes to Avoid

• Misclassifying gross wages and super
• Forgetting to reverse accruals in the following period
• Posting net wages as a single debit without separating liabilities
• Delayed reconciliation with bank transactions or BAS

Mistakes in payroll accounting can affect your profit and loss statement, balance sheet, and even tax reporting.

FAQs About Payroll Journal Entries

Are payroll journal entries required for small businesses?

‍Yes. Even if you're a small business, accurate journal entries are necessary for proper financial reporting and BAS submissions.

What if I outsource payroll?

‍You’re still responsible for recording the payroll expenses and liabilities in your general ledger. Some providers (like Microkeeper) offer automated journal exports.

Do I need to separate super and PAYG in journal entries?

‍Absolutely. These are separate liabilities and should be recorded to track payments to the ATO and employee funds correctly.

Final Thoughts

Payroll journal entries are the backbone of accurate, compliant financial reporting in any business. Whether you manage payroll in-house or use cloud-based software like Microkeeper, understanding how payroll entries impact your books helps ensure transparency, tax compliance, and smarter financial decision-making.

With automation, integration, and audit-ready tools, Microkeeper simplifies this process, giving you more time to focus on your people and business growth.

_{Disclaimer: This content is for general informational purposes only and should not be considered financial or legal advice. Please consult with a registered accountant or tax advisor for guidance specific to your business.}