At month-end, your payroll liability accounts should reflect only what you still owe — unpaid tax liabilities and unremitted benefit deductions. Here's how to close them out correctly.
The two-step payroll accounting cycle
- Pay run entry: Records wages expense and creates payroll liabilities (what we call the "payroll journal entry")
- Payment entry: Clears the liabilities when you actually pay taxes, benefits, and net wages
Closing net wages payable
When ACH direct deposits settle (usually next business day):
| Account | Debit | Credit |
|---|---|---|
| Net Wages Payable | $7,500.00 | |
| Bank / Cash | $7,500.00 |
Closing federal tax liabilities
When you make a 941 tax deposit (semi-weekly or monthly, per your deposit schedule):
| Account | Debit | Credit |
|---|---|---|
| Federal WH Payable | $1,500.00 | |
| Employee SS Payable | $620.00 | |
| Employee Medicare Payable | $145.00 | |
| Employer SS Payable | $620.00 | |
| Employer Medicare Payable | $145.00 | |
| Bank / Cash | $3,030.00 |
Month-end check
After all payments: each payroll liability account should equal only the accrued-but-not-yet-due amounts. If a balance is older than the deposit due date, investigate — it may mean a payment was missed.
PostBooks generates the pay-run entries. Your accounting software handles the payment entries when you record the bank transactions. Try it free.