7.4 Payroll Accounting & Journal Entries
Key Takeaways
- Record gross wages in one entry: debit Wages Expense for the full gross, credit FIT / employee FICA / state withholding (and garnishments) as payables, and credit Wages Payable or Cash for net pay.
- Record employer payroll taxes in a separate entry: debit Payroll Tax Expense, credit FICA Payable (employer OASDI + employer Medicare), FUTA Payable, and SUTA Payable. Do not put employee withholdings on this entry.
- There is no employer credit to Additional Medicare Payable except for amounts withheld from the employee; that 0.9% is never Payroll Tax Expense.
- Paying the net paycheck debits Wages Payable and credits Cash; remitting taxes debits the tax payables and credits Cash. Neither payment re-expenses wages.
- On North Finch's January 16, 2026 biweekly payroll of $5,650.00 gross, employer FICA is $432.23, full-credit FUTA is $33.90, and illustrative 2.7% SUTA on $5,650.00 is $152.55, so Payroll Tax Expense is $618.68.
Four entries, four questions
AIPB's payroll workbook ends with accounting for payroll—the journal entries that turn Sections 7.1–7.3 into a general ledger. The Certified Bookkeeper credential, as AIPB describes it, assures skill through the adjusted trial balance, including basic payroll, for firms of up to 100 employees. If the only entry you know is "debit wages, credit cash for the net check," the trial balance hides tax debt and understates labor cost.
Keep Chapter 6 off this journal. Classification, FLSA overtime, and the W-4 already determined gross and employee FIT. This section records what North Finch owes employees, the IRS, and the state after those amounts are known.
This independent OpenExamPrep section uses the 2026 Topic 751 / Topic 759 rates already locked in Section 7.1. FIT and state income tax below are illustrative Pub. 15-T / state-certificate amounts, not statutory flat rates. The 2.7% / $14,000 SUTA figures are this employer's state assignment for the illustration, not a federal SUTA rate.
The payday that feeds every entry (January 16, 2026)
First biweekly payday of 2026. YTD before this check is $0, so every dollar is still inside the OASDI base, the FUTA $7,000 base, and the illustrative $14,000 SUTA base. Round FICA per employee, then add (Kai's Medicare is the only split penny: 0.0145 × $1,850.00 = $26.825 → $26.83).
| Employee | Gross | FIT (illustrative) | Employee OASDI 6.2% | Employee Medicare 1.45% | State IT (illustrative) | Net before garnishment |
|---|---|---|---|---|---|---|
| Elena Voss | $2,400.00 | $285.00 | $148.80 | $34.80 | $72.00 | $1,859.40 |
| Kai Nakamura | $1,850.00 | $168.00 | $114.70 | $26.83 | $46.00 | $1,494.47 |
| Jonah Hale | $1,400.00 | $92.00 | $86.80 | $20.30 | $28.00 | $1,172.90 |
| Totals | $5,650.00 | $545.00 | $350.30 | $81.93 | $146.00 | $4,526.77 |
Checks: 0.062 × $5,650.00 = $350.30. 0.0145 × $5,650.00 = $81.925, which equals the $81.93 employee-level sum. $5,650.00 − $545.00 − $350.30 − $81.93 − $146.00 = $4,526.77.
Jonah also has $80.00 child support this period (Section 7.3). His net check is $1,172.90 − $80.00 = $1,092.90. Studio net cash to employees = $4,526.77 − $80.00 = $4,446.77. Child support does not change FICA, FUTA, or SUTA.
Employer layer on this same payday:
| Tax | Computation | Amount |
|---|---|---|
| Employer OASDI | 0.062 × $5,650.00 (match) | $350.30 |
| Employer Medicare | 0.0145 × $5,650.00 (match, rounded with employees) | $81.93 |
| FUTA (full credit) | 0.006 × min($7,000, $5,650.00) = 0.006 × $5,650.00 | $33.90 |
| SUTA (illustration 2.7%) | 0.027 × $5,650.00 | $152.55 |
| Payroll Tax Expense | Sum of employer taxes only | $618.68 |
Employer FICA payable = $350.30 + $81.93 = $432.23. Combined FICA payable after both entries (employee + employer) = $350.30 + $81.93 + $432.23 = $864.46. Form 941 taxes this payday = FIT $545.00 + FICA $864.46 = $1,409.46. Additional Medicare = $0 (nobody is near $200,000).
Entry 1 — Record gross wages and employee withholdings
Debit Wages Expense for gross, not net. Credit each employee withholding (and garnishment) as a liability. Credit Wages Payable for what will actually be paid to employees. If you pay the same day and skip the payable, credit Cash for net pay instead of Wages Payable; the withholding credits do not change.
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | 5,650.00 | |
| Federal Income Tax Payable | 545.00 | |
| FICA Payable (employee OASDI + Medicare) | 432.23 | |
| State Income Tax Payable | 146.00 | |
| Child Support Payable | 80.00 | |
| Wages Payable | 4,446.77 |
FICA credit $432.23 is employee $350.30 + $81.93 only. Some ledgers split Social Security Tax Payable and Medicare Tax Payable; the CB exam cares that employee FICA is a liability, not an extra expense. Do not debit Payroll Tax Expense in Entry 1.
Entry 2 — Record employer payroll taxes (the entry the net-check method skips)
| Account | Debit | Credit |
|---|---|---|
| Payroll Tax Expense | 618.68 | |
| FICA Payable (employer OASDI + Medicare) | 432.23 | |
| FUTA Payable | 33.90 | |
| SUTA Payable | 152.55 |
This is the sentence to memorize: debit Payroll Tax Expense, credit FICA Payable, FUTA Payable, and SUTA Payable. Employee FIT, employee FICA, state income tax, and garnishments do not appear here. Workers' compensation premium, if accrued, is a separate insurance entry (Section 7.3), not a fourth credit on this tax line.
After Entries 1 and 2, FICA Payable holds $864.46 (both shares). That combined balance is what EFTPS usually remits as the Social Security and Medicare portion of the 941 deposit.
Entry 3 — Pay net wages
| Account | Debit | Credit |
|---|---|---|
| Wages Payable | 4,446.77 | |
| Cash | 4,446.77 |
If Entry 1 already credited Cash, skip Entry 3. Never debit Wages Expense again when the ACH file leaves the bank.
Entry 4 — Remit Form 941 taxes (FIT + both FICA shares)
North Finch is a monthly depositor (Section 7.2). January 16 wages are deposited with the rest of January by mid-February. When that EFTPS payment goes out:
| Account | Debit | Credit |
|---|---|---|
| Federal Income Tax Payable | 545.00 | |
| FICA Payable | 864.46 | |
| Cash | 1,409.46 |
Remittance clears liabilities. It is not Payroll Tax Expense. Booking debit Payroll Tax Expense $1,409.46 here would double-count employer FICA and would expense the employees' own FIT and FICA.
Entries 5 and 6 — Remit FUTA and SUTA on their own calendars
FUTA this payday is only $33.90. North Finch's annual FUTA in Section 7.1 was $193.20, under Topic 759's $500 quarterly trigger, so the studio may pay FUTA with Form 940 by January 31 (or deposit earlier). When paid:
| Account | Debit | Credit |
|---|---|---|
| FUTA Payable | 33.90 | |
| Cash | 33.90 |
SUTA follows the state deposit schedule (often quarterly). When remitted:
| Account | Debit | Credit |
|---|---|---|
| SUTA Payable | 152.55 | |
| Cash | 152.55 |
Child support is remitted to the state disbursement unit on the order's deadline: debit Child Support Payable $80.00, credit Cash $80.00.
Accrual at month-end, then the next payday
If the January 16 payday covers work through January 16 and the books close January 31 with unpaid days after the 16th, debit Wages Expense and Payroll Tax Expense, credit Wages Payable and the tax payables, for the accrued slice—the same adjusting-entry skill as Chapter 2, now with employer tax. If you use reversing entries on February 1, the next payday can be recorded in full the way Section 4.1 described. Do not accrue FUTA on wages after an employee has already passed $7,000 of FUTA wages, and do not accrue employer OASDI on wages after $184,500.
Marisol crossover (employer side only). Before a later 2026 check she has $183,000 of FICA wages; the check is $6,000. Entry 2 employer FICA that day is OASDI $93.00 + Medicare $87.00 = $180.00, not 7.65% of $6,000. FUTA on that check is $0 if she already passed $7,000 in January.
Accrual-basis versus deposit-basis. Publication 15 dates Form 941 liability from when wages are paid, which is what the deposit schedule uses. Your books may still accrue wages at month-end. That timing difference is normal: the adjusting entry puts cost in the right month; the 941 deposit still follows payday.
Exam traps. (1) Debiting Wages Expense only for net pay. (2) Putting employer tax on Entry 1 or employee withholdings on Entry 2. (3) Matching Additional Medicare in Entry 2. (4) Expensing the 941 remittance. (5) Using 6.0% FUTA in the journal when the stem gives the full 5.4% credit. (6) Accruing FUTA on Elena's December wages after her FUTA wages already hit $7,000. (7) Crediting Cash for gross pay while also crediting all the withholdings (that over-credits Cash). Section 7.1 computed the rates; Section 7.2 told you when Cash leaves; this section is the only place the trial balance stays honest.
Which journal entry records North Finch's employer payroll taxes on the January 16, 2026 payday?
On the January 16, 2026 biweekly payroll, North Finch's FICA wages are $5,650.00 and the full FUTA credit applies. What is employer FICA and FUTA for Entry 2 (ignore SUTA)?
After Entries 1 and 2 are posted, North Finch pays employees their net pay and later sends the Form 941 deposit. Which pair of entries is correct?