15760 Ventura Blvd, Suite 610 Encino, CA 91436
15760 Ventura Blvd, Suite 610 Encino, CA 91436
Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

Five Payroll Accounting Terms All Small Business Owners Should Know


Accounting for payroll affects every person a business employs. Although payroll accounting is often contracted to an outside accounting firm, its importance suggests that small business owners should know a little about the terms accounting professionals use when discussing how people get paid. Learning the following five phrases will boost your payroll vocabulary.


1. Cost Center
In payroll accounting, a cost center is one of many “accounts” to which wages are paid. The term is often used to refer to expense accounts. Defining cost centers helps to keep track of who is spending money on what, and why. 

2. Holding Account
Also known as a control account or suspense account, a holding account is an account created to hold money that comes out of an employee’s gross pay that will then be given to another organization. Union dues, debt repayments, and taxes are all examples of funds that must be subtracted from an employee’s account and deposited in a holding account until they become due. Funds are then paid from the holding account to the interested party.

3. Journal Entry
When accounting for payroll, a journal entry is a sequence of debit and credit entries that has been fully balanced. It details how costs have been transferred to cost centers and how credits have been transferred to holding accounts. Journal entries can also detail how money is reallocated between departments. 

4. Direct Credit
Direct credit is another way to refer to the increasingly popular practice of electronic funds transfer, or EFT. This practice automatically transfers funds between banks without needing to issue or deposit paper checks.

5. Accounting Codes
Different businesses use different cost allocation systems. While some businesses only keep track of hours worked, other businesses track finances by department, job, and/or activity. Each of these different methods of tracking costs (Department, Job, Activity) is considered an accounting code.

Accounting for payroll can be a complicated task. While it is often best left to professionals, it should not be ignored completely. By taking the time to learn these basic phrases, small business owners will be better equipped to discuss their payroll systems with qualified accountants.