![]() variable employment costs, but it can also make your general ledger more complex. Taking a more granular view will help you understand fixed vs. For example, you can combine salaries and wages into one expense category or break them down by wage expenses (hourly workers) that are changeable based on the number of hours worked each week and salaried expenses for employees paid by salary. Commonly, wage expenses are segmented by pay types or departments but you can choose what makes sense for your business. The biggest expense item you will need to include on your books is probably your employees’ salaries and wages. ![]() Instead, it should be broken up into journal entries that loosely parallel all the line items on your employees’ pay stubs, plus any costs you incur for things like the employer’s share of taxes and any benefits you offer. ![]() When you do your bookkeeping, payroll expenses shouldn’t fall into a single expense category in your general ledger. For example, wages paid to your employees and your portion of employment taxes to the IRS are expenses for your business. Rather than getting caught up in all the jargon, it’s best to think about it this way: Payroll expenses are the cost of employee wages and all related employer taxes. Terms like expenses and liabilities can be confusing, and the accounting world hasn’t done a great job simplifying the verbiage for small business owners.
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June 2023
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