Hi All,
Handling the double entries for wages has been bothering me for quite some time. Can anyone give a layman's explanation, as in dumb it down, so I can understand it? For example, let me quickly draft something here:
Gross Tax Employee NI Net Pay Employer NI
Mr A
Mr B (director)
Mr C
Mr B
Mr D
Something like the above would be available from a wages summary. How do you deal with something like the above? What are the double entries, how do you get it into the ETB (sorry, no figures)? How does it affect the balance sheet and profit and loss? Please all do your best to explain in jargon free language :-).
What do you do when the practice is not handling the payroll?
What do you do if there are no wages figures, except what was paid through bank?
Is there a book that explains this in an easy going, easy to understand manner?
Please my fellow accountants, do help here!
Replies (4)
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With Mr A, C and D the journal entry is:
DR Wages (P&L) with total gross wages
DR Social security (P&L) with total employer's NIC
CR Net wages control (B/S) with total net wages
CR Tax/NIC control (B/S) with total tax, e'ee and e'er NIC
With Mr B, the director, the journal entry is:
DR Director's renumeration (P&L) with gross wages
DR Director's social security (P&L) with employer's NIC
CR Net wages control (B/S) with net pay
CR Tax/NIC control (B/S) with total tax, e'ee and e'er NIC
The DR's to the P&L show the total expense to the business for employing the 5 employees. The CR's to the Balance Sheet shows the liability, i.e. the business owes the employees the net pay and owes HMRC the tax + e'ee NIC + e'er NIC.
When the business pays the net wages to the employees the journal entry is:
DR Net wages control (B/S)
CR Bank (B/S)
This settles the liability (i.e. cancels out the CR in net wages control) and should leave a zero balance in net wages control, i.e. net wages is no longer owed.
When the business pays the tax, e'ee NIC and e'er NIC to HMRC the journal entry is:
DR Tax/NIC control (B/S)
CR Bank (B/S)
This settles the liability (i.e. cancels out the CR in tax/NIC control) and should leave a zero balance in tax/NIC control, i.e. tax/NIC is no longer owed.
When your practice does not do the payroll you will need to request the monthly or weekly payroll summaries for the entire accounting period from the person who processes payroll.
If you have no wages figures you need to ask why; is a payroll being processed? If so, request the payroll summaries. Are subcontractors being paid? If so,
DR: Subcontactors (P&L)
CR: Bank (B/S)
you may want to make sure that your client understands employment law and that these subcontractors are genuine subcontractors rather than people who should really be on payroll.
I would add ...
if subcontractors have CIS deductions you would
DR Subcontractors (gross payment)
CR Bank (amount paid)
CR PAYE Control (CIS deduction withheld)
following on from Journals for wages ..
Those explanations were really good ..can i just clarify, as i have never dealt with them (not sure if i ever will) ..CIS deductions ..are they simply held on company accounts until such time contractor gets paid, or are the paid to Inland Revenue straightaway?
If paid straightaway, one would then assume that company PAYE bill is reduced later down the road if and when CIS is paid to contractor?
Thank you
CMcD :)