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

USC

Net Pay

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

Narrative	Ref	Ledger Code	Debit	Credit
Gross Pay	1	301
Employer PRSI	2	302
Income Tax	3	850
Employee PRSI	4	850
Employer PRSI	5	850
USC	6	850
Net Pay	7	890

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 Pay	Income Tax	Ee Prsi	USC	Net Pay	Er Prsi
10,000.00	2,500.00	800.00	1,400.00	5,300.00	1,200.00

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 Journals	Ref	Ledger Code	Debit	Credit
Gross Pay	1	301	10000.00
Employer PRSI	2	302	1200.00
Income Tax	3	850		2500.00
Employee PRSI	4	850		800.00
Employer PRSI	5	850		1200.00
USC	6	850		1400.00
Net Pay	7	890		5300.00

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 Code	Description	Debit	Credit
Profit & Loss Codes
301	Staff Gross Pay	10,000
302	Staff Employer PRSI	1,200
Balance Sheet Codes
700	Bank Account		5,300
850	PAYE/PRSI/USC Control A/c		5,900
890	Net Pay Control A/c		0

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

Gross Pay	10,000
ER Prsi	1,200
Wages Cost	11,200

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

Income Tax	2,500
Employee Prsi	800
Employer Prsi	1,200
USC	1,400
Liability	5,900

Values for Monthly P30

Tax	2,500
Prsi (EE+ER)	2,000
USC	1,400
Liability	5,900

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

Net Pay

5,300

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

Dr	A/c 890	5,300.00
Cr	A/c 700	5,300.00

The Net Pay Control A/c will look like this

T Account Format (manual format)

Net Pay Control Account

Date	Narrative	Dr	Date	Narrative	Cr
31 Jan	Bank Payment	5,300.00	31 Jan	Net Pay Jan 2022	5,300.00
	Balance c/d	0.00
		5,300.00			5,300.00
			1 Feb	Balance b/d	0.00

Running Total Format (Accounts Software)

890 Net Pay Control

Date	Narrative	Debit	Credit	Balance
31 Jan	Net Pay Jan 2022		5,300.00	-5,300.00
31 Jan	Bank Payment	5,300.00		0.00

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.