Paycheck: items and accounting

We'll show you what the most important items are when calculating and paying salaries.
Whether you are a business owner, an accountant or an employee, it's important to know the factors that go into calculating a paycheck. This is a legally valid document that details the withholdings and the take-home pay that the worker receives based on the items detailed in the General Accounting Plan. If you want to know more about how a salary is calculated and posted, read on.
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The General Accounting Plan

Posting employee salaries is an expense that is reflected in the Accounts Table of each company's General Accounting Plan. The General Accounting Plan is a mandatory document that provides a standard description of the accounting status of a company and which details its annual accounts. The annual accounts, in turn, are shown in the account tables, which contain in 7 different groups the items corresponding to expenses and income, assets, liabilities and net equity.

Items for calculating a paycheck

Both the payment of salaries and the contributions that the company must pay as part of payroll payments are in "Group 6: purchases and expenses," of the General Accounting Plan. The expense accounts used to calculate these items and to be able to post the salaries are as follows:

  • "Account 640. Salaries": it shows the gross salary that the worker receives. This account, therefore, includes any fixed and occasional remunerations that the company pays to workers, in addition to accrued remunerations.
  • "Account 642. Social Security paid by the company." This account includes the payments that the company makes to Social Security for the work that its employees perform for the company. This account is not shown in the pay stub that is provided to the employee.

When doing the standard posting of a payroll entry, first, Account 640 is considered, that is, the gross salary that corresponds to the worker and the expense that entails for the company. However, the gross salary is not the total amount the employee receives in their paycheck, since certain amounts are deducted in account 640, such as Social Security contributions and income tax withholdings, which the company pays on behalf of the worker by withholding these items from the paycheck.

These amounts that the company pays on behalf of the worker are listed in "Group 4: Creditors and debtors for commercial transactions" of the GAP. The mandatory contributions that the worker has to pay to Social Security are shown in "Account 476. Social Security organizations, creditors," while Personal Income Tax withholdings are shown in "Account 4751. Revenue Service, withholdings payable."

The difference between Account 640 and the sum of Accounts 476 and 4751 is what the company must pay the worker. This amount is shown in "Account 465. Outstanding remunerations." When posting the payroll, it is important to realize that it is obligatory to make a 465 account for each worker, since the salary received by each worker is different and must be reflected accurately in the company's accounting plan. Accordingly, the accounts will be listed following the pattern 465.1, 465.2, 465.3, etc., until the total accounts equal the total number of workers in the company.

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Other items that can appear in a paycheck and how they are itemized

  • In the event of early retirement or dismissal, the compensation, if any, is included in "Account 641. Compensations." This account shows how much the company has to pay to the worker in the event of an unjustified dismissal.
  • If the company pays the worker in advance, the payment of this amount is reflected in "Account 460. Salary advances." As a result, when paying the salary at the end of the month, the company will deduct the advance from the employee's paycheck.
  • In "Account 755. Income from staff services," the expenses for the services that the company provides to its workers in the event that the workers used said services, such as food and transportation, are recorded and deducted. The amounts posted in this account are deducted from the employee's salary at the end of the month.

BBVA is not liable for the content, truthfulness, accuracy, adequacy, integrity or timeliness of the information included in the articles, which were prepared by third parties external to BBVA. The article is for information purposes only. It is not binding or compulsory and it does not constitute a commercial offer or contractual commitment on the part of BBVA.

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