Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Many individuals mistakenly consider bookkeeping and accounting to be the same thing. This confusion is understandable because the accounting process includes the bookkeeping function, but is just one part of the accounting process. The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies.



There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process and balance sheet using the trial balance and ledgers prepared by the bookkeeper.


In a company, payroll is the sum of all financial records of salaries for an employee, wages, bonuses and deductions. In accounting, payroll refers to the amount paid to employees for services they provided during a certain period of time.

Payroll plays a major role in a company for several reasons. From an accounting perspective, payroll is crucial because payroll and payroll taxes considerably affect the net income of most companies and they are subject to laws and regulations (e.g. in the US payroll is subject to federal and state regulations). From an ethics in business viewpoint payroll is a critical department as employees are responsive to payroll errors and irregularities: good employee morale requires payroll to be paid timely and accurately.

The primary mission of the payroll department is to ensure that all employees are paid accurately and timely with the correct withholdings and deductions, and to ensure the withholdings and deductions are remitted in a timely manner. This includes salary payments, tax withholdings, and deductions from a paycheck.

Generally speaking, employers report payroll by calculating gross pay and various payroll deductions to arrive at net pay. While this seems simple enough to understand, calculating various payroll deductions requires that the payroll accountant be detail-oriented and work with extreme accuracy.

Voluntary Payroll Deductions


Voluntary payroll deductions are withheld from an employee's paycheck only if the employee has agreed to the deduction. Voluntary deductions pay for various benefits which the employee has chosen to participate in. Voluntary payroll deductions include the following:

Health insurance premiums (medical, dental, and eye care)
Life insurance premiums
Retirement plan contributions (such as a 401k plan)
Employee stock purchase plans (ESPP and ESOP plans)
Meals, uniforms, union dues and other job-related expenses

Voluntary deductions can be paid with pre-tax dollars or after-tax dollars, depending on the type of benefit being paid for. Professional grade payroll software will help you keep track of all the tax-related payroll calculations.

Employer Payroll Tax Responsibilities


The responsibility for payroll taxes continues even after paychecks have been issued to employees. The company is responsible for paying the employer's share of payroll taxes, for depositing tax dollars withheld from the employees' paychecks, preparing various reconciliation reports, accounting for the payroll expense through their financial reporting, and filing payroll tax returns.

Companies are responsible for paying their portion of payroll taxes. These payroll taxes are an added expense over and above the expense of an employee's gross pay.

Reporting Payroll Taxes

Employers are required to report their payroll tax obligations and to deposit payroll taxes in a timely manner. Reporting requirements include:

Making federal tax deposits
Annual federal unemployment tax return (Form 940 or 940EZ)
Employer's quarterly payroll tax return (Form 941)
Annual Return of Withheld Federal Income Tax (Form 945)
Wage and Tax Statements (Form W-2)