How do you prepare the payroll journal entry and reconcile payroll with the general ledger?
What the interviewer wants to hear
- Debit salary and employer cost expenses by cost centre
- Credit net salary payable and statutory liabilities
- Clear liabilities when payments are made
- Reconcile payroll register totals with GL balances monthly
- Investigate and clear open items
Model answer
From the payroll register I prepare a journal that debits salary expense, and employer costs such as employer PF and ESI, by cost centre or department. On the credit side I post net salary payable, PF payable including both shares, ESI payable, TDS payable, professional tax payable and other deductions such as loan recoveries. When the bank pays salaries and challans are paid, those liability accounts are cleared. Each month I reconcile the payroll register totals to the GL: the expense posted should match gross plus employer costs, and each liability account should be zero after payment or show only the current month amount. Any balances left from earlier months are investigated, for example a challan paid late or a salary returned by the bank. I keep the reconciliation with supporting reports so finance and auditors can review it.
Can you answer it under time pressure?
Take a timed medium round and get scored on every answer.
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