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Payroll Basics - Wages Journals

Wages journals are as complicated as bookkeeping gets. If a business has employees, the business will have to account for any payment made to those employees, including the employees and employers tax contributions and payments.

In this post, I will teach the basics of wages journals...


To help you identify what needs accounting for let's look an example of an employees payslip.

The payslip should list the following information, as well as other details...

Gross Pay

Net Pay

Income Tax Deduction

National Insurance Contribution

Other Deductions

All of these will need accounting for using journal entries, and so will the employers national insurance contribution (not listed above).

Please note: All figures are for example only and are not accurate of present tax rates.

Journal #1 - Gross Pay Journal

Let's say the employee was paid £2000.00 gross.

Any tax and national insurance will be deducted by the employer and will be paid by the employer to HMRC. Because of this, the employer needs to account for the liability i.e. The amount owed to HMRC.

DR Gross Wages Expense Account £2000.00

CR Employees Tax Control Account £500.00

CR Employees NI Control Account £100.00

CR Net Pay Control Account £1400.00

Journal #2 - Employers NI Journal

We now need to account for the employers national insurance contribution.

DR Employers Tax Expense Account £300.00

CR Employers Tax Control Account £300.00

Journal #3 - Net Payment to Employee Journal

Once the net wages or net salary has been physically paid to the employee, this transaction will need accounting for.

This one is easy...

CR Bank Account £1400.00

DR Net Pay Control Account £1400.00

Journal #4 - Tax Payment to HMRC Journal

Once the employees and employers tax and national insurance payments have been physically paid to HMRC, these transaction will need accounting for.

CR Bank Account £900.00

DR Employees Tax Control Account £500.00

DR Employees NI Control Account £100.00

DR Employers Tax Control Account £300.00

You can learn more about wages journals and payroll accounting by taking my free payroll course! No registration required!

I hope this helps!

The Bookkeeping Master - -


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