Where Does Payroll Go on a Balance Sheet?

Payroll is an essential part of running a business, but understanding how to correctly account for it in your financial statements can be confusing. If you’re wondering where payroll appears on the balance sheet, or how to properly record it, you’re not alone. Here’s a straightforward breakdown to help you get it right—and how Be Payroll can support you in staying compliant and efficient.

How to Record Payroll in Accounting

Recording payroll involves multiple moving parts. Here’s a simple workflow:

  1. Calculate Gross Wages – This includes salaries, wages, bonuses, commissions, and overtime.
  2. Deduct Withholdings – Tax (e.g., PAYE), National Insurance contributions, pensions, and other deductions must be subtracted.
  3. Record Employer Contributions – These include employer NICs, pensions, and possibly Apprenticeship Levy.
  4. Post Journal Entries – You’ll create journal entries to record payroll as both an expense and a liability until payments are made.

For example, a journal entry might look like this:

  • Debit: Wages Expense (for gross pay)
  • Credit: PAYE/NICs Payable (for deductions owed to HMRC)
  • Credit: Wages Payable or Bank (for net pay if already paid)

Are Salaries and Wages Liabilities or Expenses?

This is a common question—and the answer is: both.

  • Salaries and wages are expenses because they represent the cost of employing staff to run your business.
  • However, until paid, they are also liabilities, as you owe that money to employees and tax authorities.

In your accounting system, the expense is recognized immediately, while the liability remains on your balance sheet until payments are made.

What Type of Account Is Payroll?

Payroll touches several types of accounts:

  • Expense accounts: Wages and salaries, employer NIC, pension contributions.
  • Liability accounts: PAYE Payable, NIC Payable, Pension Payable, Wages Payable.

By separating these components, your accounts remain clean and auditable—especially important when HMRC or your accountant comes knocking.

Where Payroll Appears on the Balance Sheet

Payroll-related items appear in the liabilities section of your balance sheet. These include:

  • Accrued Wages Payable – wages earned by staff but not yet paid.
  • Payroll Taxes Payable – deductions you owe to HMRC.
  • Pension Contributions Payable – employee and employer pension payments awaiting submission.

Once these are paid, they’re cleared from your liabilities.

Let Be Payroll Help You Stay on Track

At Be Payroll, we specialise in professional payroll outsourcing that keeps your accounting tidy and your obligations met. Whether you’re an SME managing a small team or an accountancy firm juggling multiple payrolls, we can:

  • Accurately process payroll and produce journal entries for easy accounting integration
  • Handle statutory deductions and submissions to HMRC
  • Provide detailed reports to ensure your liabilities and expenses are properly recorded

Let’s take the stress out of payroll so you can focus on what you do best—growing your business.

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