Whether or not you use an outside service to handle your payroll, when the payroll is complete you will receive a report that details the amount paid, the benefits costs deducted from the employee’s paycheck, the taxes deducted from the paycheck, and the net check given to each employee.

If you are handling payroll in-house, these numbers will either be generated by your payroll software (when the payroll is complete) or will be part of a spreadsheet you develop in order to make out your paychecks by hand. An outside payroll service will probably not give you a report with each pay period, but instead will submit a report at the end of each month to report payroll activity.

The only difference in your books will be whether you have the actual details when you write the checks to your employees or you get the details at the end of the month and just record the check given to the payroll company so they could process and send the checks. Many companies don’t even send checks today. Instead, pay is sent electronically to deposit the money directly into the employees’ accounts.

Companies with an in-house payroll operation should record the payroll details when the payroll is complete in a summary entry to the payroll-related accounts and credit the actual cash used in the Cash in Checking account. Companies that use outside payroll services will have to wait until the month-end report to record the payroll details. The check given to the payroll service is usually entered into a Temporary Distribution account until they get the details at the end of the month.

The primary purpose of the month-end close for the payroll accounts is to verify that your postings to all related accounts are accurate. These accounts include Cash in Checking, Accrued Payroll Taxes (federal and state income, Social Security, Medicare), and Accrued Benefits (health insurance, retirement contributions, and so on). Some companies also collect dues for unions, while others collect charitable donations, such as for United Way; both types of deductions must be tracked.

Reviewing all these details at month-end close not only makes sure you are accurately matching employee expenses for the month with company income, it also gives you an opportunity to review your accrued tax accounts to be sure these balances are accurate.