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How to correctly calculate and post the cost of wages of your business to your general ledger

If you correctly calculate and post the cost of wages of your business, your monthly Profit and Loss statement will show the correct costs values. Your Balance Sheet will also show the correct amount owed to the Revenue Commissioners for taxes.

Many bookkeepers and non-bookkeepers do not correctly post wages journals in their accounts system and end up with a Trial Balance with incorrect or incomplete values.

Here are instructions with explanations for posting the standard wages journals. Pensions and other deductions are not covered in this article. It is assumed you are using a payroll software package and can print reports from it.

First from your payroll software you need to be able to clearly find these values.

Gross Pay
Income Tax
Employee PRSI
Employer PRSI
Net Pay
wages values required

Next check that your General Ledger has these account codes (your codes and descriptions may be different but will perform the same task)
The Net Pay Control A/c is usually not a standard account, so you may have to add it to your general ledger account codes. It is a Balance Sheet account.

List of General Ledger codes required to record wages journals

General Ledger Account CodeGeneral Ledger Account Description
Profit & Loss Codes
301Staff Gross Pay
302Staff Employer PRSI
Balance Sheet Codes
700Bank Account
850PAYE/PRSI/USC Control A/c
890Net Pay Control A/c

Below is a template for the information we need to enter into our general ledger

This Payroll Journal Template shows the journals we need.

NarrativeRefLedger CodeDebitCredit
Gross Pay1301  
Employer PRSI2302  
Income Tax3850  
Employee PRSI4850  
Employer PRSI5850  
Net Pay7890  
payroll journal template

Note: Ref is optional

Here is a report from our payroll software showing the values we need. If you cannot find a similar report, contact your payroll software support provider. This is a very simple report to create.

Monthly Payroll Report for January 2022

Gross PayIncome TaxEe PrsiUSCNet PayEr Prsi
monthly payroll report

NOTE: Net pay for the Month of €5,300 was paid by Electronic Payment (EFT)

With this information we can now create the journals needed for our General Ledger

Here is our completed Journals listing

Basic Payroll JournalsRefLedger CodeDebitCredit
Gross Pay130110000.00 
Employer PRSI23021200.00 
Income Tax3850 2500.00
Employee PRSI4850 800.00
Employer PRSI5850 1200.00
USC6850 1400.00
Net Pay7890 5300.00
completed journal listing

Note: Ref is optional

The total of the debit values must equal the total value of the credit values. If they don’t, then you have made an error with one or more of the values and must check your values.

Here is what you can now calculate by having entered the journals

Account CodeDescriptionDebitCredit
Profit & Loss Codes  
301Staff Gross Pay10,000 
302Staff Employer PRSI1,200 
Balance Sheet Codes  
700Bank Account 5,300
850PAYE/PRSI/USC Control A/c 5,900
890Net Pay Control A/c 0
general ledger accounts with values

The cost to the business in wages is €11,200

Gross Pay10,000
ER Prsi1,200
Wages Cost11,200
wages cost

The amount owed to the Revenue Commissioners is €5,900

Income Tax2,500
Employee Prsi800
Employer Prsi1,200
tax liability

Values for Monthly P30

Prsi (EE+ER)2,000
monthly P30

The amount the employees are to be paid is €5,300

Net Pay5,300
net pay

This net pay control account double checks that the amount actually paid through the bank agrees with the net pay the payroll software calculated. If the Net Pay does not agree with the bank payment, you need to find out why.

The net pay is paid from the bank account

The Bank Payment double entry will be

DrA/c 8905,300.00
CrA/c 7005,300.00
wages bank payment double entry journal

The Net Pay Control A/c will look like this

T Account Format (manual format)

Net Pay Control Account

31 JanBank Payment5,300.0031 JanNet Pay Jan 20225,300.00
 Balance c/d0.00   
  5,300.00  5,300.00
   1 FebBalance b/d0.00
net pay control account T account

Running Total Format (Accounts Software)

890 Net Pay Control

31 JanNet Pay Jan 2022 5,300.00-5,300.00
31 JanBank Payment5,300.00 0.00
net pay control account running total

The balance of 0.00 indicates that the correct amount of net pay was paid out

So, in addition to checking that the correct net pay was paid, we have out total wages cost and we know our paye/prsi/usc liability. Knowing the amount owed to the Revenue Commissioners is very important if you are paying fixed amounts every month. By posting the journals as shown above, you will always know whether you are overpaying or underpaying these taxes.