Think of a chart of accounts as a file cabinet, with a file for each type of accounting information you want to track. That’s why it is so important to understand how it works. The Chart of Accounts is the backbone of your accounting system. The accounts are usually numeric, but can also be alphabetic or alphanumeric. The chart is used by the accounting software to aggregate information into an entity’s financial statements. The chart is usually sorted in order by account number, to ease the task of locating specific accounts. Setting up your journal entry and reconciling your payroll clearing account is a good way to stay on top of your largest expense and make paying payroll taxes seamless.The chart of accounts is a listing of all accounts used in the general ledger of an organization. Memorize it in QuickBooks or go to the most recent entry and copy it. Using a journal entry like the one above is simple and easy to follow.
The "clearing" in a payroll clearing account means that you are using this accounting method to "clear" revenues and expenses and reconcile any potential errors you may have in determining payroll. In other words, this is an entry that helps you determine exactly how much you are paying out in payroll in a given period. Better Financial Information: You can allocate payroll to specific accounts (direct and indirect labor), departments, and jobs from the payroll clearing account.Ī journal entry to a payroll clearing account is a journal entry that summarizes the total expenses that are included in all net payroll checks.You won’t have to sort through transactions from daily operations. A payroll clearing account puts a spotlight on the amount of the error and makes it easy to make the adjustment. Realistically, there will be times when the payroll register from the payroll company has a transaction that was entered incorrectly. Identify Errors Easier: Ideally, payroll processing and journalizing will be error-free.A clearing account is balanced when all the entries come to zero. Easier Bank Reconciliations: Using a payroll clearing account makes bank reconciliation easier, especially if payroll correcting entries are necessary.
How Does a Payroll Clearing Account Work?ĭeductions from your bank accounts for payroll are offset by the payroll clearing account. What Is a Payroll Clearing Account?Ī payroll clearing account is a temporary zero-balance liability account. If you follow best practices, you will journalize your payroll and use a payroll clearing account. Properly posting and reporting payroll will be a recurring task. Whether you operate a small business or large enterprise, you will have to account for payroll.
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