How payroll flows through the books. Rates here are fictional — real rates depend on jurisdiction.
Record wages expense at gross; withholdings are liabilities; net pay is cash.
Employer taxes are an additional expense and liability, settled when remitted.
On Mar 15, 2026, Corner Bean Café pays gross wages of $6,500.00. Using this exercise's fictional combined withholding rate of 15%, it withholds $975.00 and pays employees the net amount in cash.
| Wages Expense | $6,500.00 | |
| Payroll Taxes Payable | $975.00 | |
| Cash | $5,525.00 |
Withholdings are owed to the tax authority on the employees' behalf, so they are a liability, not a reduction of expense.
An employee worked 38 regular hours at $26.00 per hour and 2 overtime hours at 1.5× the regular rate. Using this exercise's fictional 12% total withholding rate (round to the nearest cent, half up), compute gross pay and net pay.
Gross $1,066.00; withholding $127.92; net $938.08.
Item 1 of 2
On Mar 15, 2026, Corner Bean Café pays gross wages of $3,500.00. Using this exercise's fictional combined withholding rate of 15%, it withholds $525.00 and pays employees the net amount in cash.
Original content. Figures are fictional; examples are generated and checked by our accounting engine. Updated 2026-10-29.