What kind of account is payroll

The payroll expense account is subtracted from and therefore reduces equity what the owner or stockholders own , which lowers the value of assets what the company owns.

Based in New York, Kate Bluest has been writing for various online publications since What Is the Origin of the Word "Payroll? Share on Facebook. Gross Payroll Gross payroll is the total amount your employees earned per pay period in exchange for their labor for your company.

Calculation Your salaried employees' gross pay is the amount of their salary, which doesn't change from pay period to pay period. Composition The journal entry to record payroll consists of gross pay, deductions, withholdings and cash. Expense Record gross payroll in the payroll expense account. When the company pays employees, the bookkeeper credits the cash account and debits the salaries payable account to bring it back to zero.

In financial terminology, debiting cash -- an asset account -- means increasing funds in operating vaults. Accrued payroll is a short-term debt because a company typically must settle compensation debts within 12 months -- a time frame that may too remote from an operational reality that usually calls for payments within a few days.

As a current liability -- the other term for a short-term debt -- accrued payroll is integral to a statement of financial position, also known as a balance sheet or report on financial condition.

The cash account also flows into a corporate balance sheet, specifically in the "short-term assets" section. To track and settle accrued payroll on time, a company uses technology. This could be a copy of your articles of incorporation if the business is a corporation or a copy of your DBA, or Doing Business As, filing made with the state. A DBA is also referred to as a fictitious name. A sole proprietor may use a DBA when operating a business under a name other than his own. The fees charged for business-checking accounts vary from bank to bank and also according to which banking services your company needs.

For instance, Bank of America offers a business-checking account that earns interest but it also offers an economy business-checking account for a company that simply wants the basics.

The Internal Revenue Service requires a business that pays employees to maintain employment-tax records for at least four years. Although a business can have one single business-checking account, using a separate business-checking account specifically for payroll helps keep business records organized. The account will show a history of which checks have been written and to whom, which of the payroll checks have been cashed by the employees and which checks are still outstanding.

Also, many banks retain copies of the checks, so if you need to access that information in the future, all payroll data is conveniently located within one business-checking account. Instead of writing physical business checks, many companies use direct deposit instead. This can be a cost-saving method of paying payroll. Direct deposit electronically transfers payroll funds from the company's business-checking account into the employee's checking account.