Payroll errors happen — an employee's hours were entered wrong, a rate wasn't updated, or a payment went to the wrong bank account. Here's how to correct the journal entry without creating a mess in your general ledger.
The reversing entry approach
The cleanest correction method is a full reversal of the original entry, followed by a new correct entry. This preserves the audit trail:
- Create a reversing entry (flip all debits/credits of the original, same date or correction date)
- Create a new correct entry
Example: Gross wages understated by $500
Original (incorrect) entry: Wages Expense debited $9,500
Step 1 — Reversal:
| Account | Debit | Credit |
|---|---|---|
| Federal WH Payable | $1,425.00 | |
| FICA Payable | $727.35 | |
| Net Wages Payable | $7,347.65 | |
| Wages Expense | $9,500.00 |
Step 2 — Correct entry: Create the full correct entry with $10,000 gross wages.
Direct correction (simpler but less clean)
If the error is small and caught immediately, you can post a correcting journal entry for the difference only. For a $500 understatement:
| Account | Debit | Credit |
|---|---|---|
| Wages Expense | $500.00 | |
| Net Wages Payable | $500.00 |
When to involve payroll, not just accounting
If the error affected net pay (employee was paid too much or too little), the payroll correction must also happen in your payroll system — not just in the GL. The journal entry follows whatever the payroll provider processes.
PostBooks generates a new journal entry whenever you upload a corrected payroll report. Try it free.