The Payroll system exists to pay employees, to
keep a ledger of payments to each employee, to withhold taxes and other amounts properly
from employees pay and to post withheld amounts to the general ledger as liabilities to be
paid to government entities and others on behalf of the employee. Gross pay is made up of
the net amount paid to each employee plus all withheld amounts.
Gross payroll is posted to an Expense Payroll Account while Net Pay
is a credit (-) to the bank payroll account and withholdings are liabilities of the
business. Besides payroll ledgers for each
employee, the payroll system also produces various payroll reports useful in satisfying
liabilities reports for tax purposes.