The Importance of Payroll Accounting System

Payrolls are said to be the lifeline of any organization. It is defined as a list of a company’s employees and the amount of money they are to be paid for the services they provide during a particular period of time. One of the most important tasks in running or managing a business is completing the payrolls in a timely manner and yet maintaining accuracy and reliability.

Payroll accounting, having its own value and importance, is a particular accounting discipline which is concerned with recording the compensations: salaries, gross wages, commissions and bonuses of the employees.  In this way, payroll accounting is one of the most essential functions of the accounting department within an organization.

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It must be noted that this specific accounting discipline is not as easy as it may seem, but a complex one, as it significantly affects the net income of the company. Since it is the sum of all financial records pertaining to the employees’ salaries, wages, deductions and bonuses, it is of course very important for the employees as well. Any issues with regard to the payrolls can lead to create dissatisfaction among the employees – which in turn may result in to affecting a company’s reputation. Hence, there is a need for having a particular payroll accounting system through which all the process may be done effectively and efficiently.

Not all systems may be incorporated with the payroll process that is done automatically. However, in general, the payrolls are processed and formulated in the following ways:

  • Adding new employees
  • Collecting timecard information or processing attendance of the employees
  • Making adjustments or Entering changes including deductions
  • Calculating taxes or other payments
  • Processing wages or dues accordingly
  • Generating Financial Entries according to the cost centers
  • The final task is to distribute each employee’s net pay which can be done in different ways such as, mailing checks, making deposits, making prepaid debit cards or distributing cash personally to the employees.

Though, to all appearances, the payroll processing task seems to be easy or mundane, but in reality, it is not. There are several aspects and complexities involved in it, unless the whole process is done by the concerned staff carefully and efficiently. It requires plenty of time and patience of the employee who is assigned to perform the payroll task. Payrolls should be processed, reviewed and validated in a careful manner, otherwise, a little negligence on an accountant part, can cause a company to reap harsh consequences.

As there has been a revolution in most areas of business management, so it goes with payroll processing and its accounting system as well. The need and importance of payroll accounting system cannot be ignored. Payroll processing software makes the task easier and less time consuming. It would thus be a wise decision to implement payroll accounting system, so that the basic tasks may be done in a way as needed, while the accuracy and reliability in the tasks may be maintained well.

Written by:
K. A. Fareed (Fareed Siddiqui)
Writer, Trainer, Author, Blogger, Software Developer
BBA, MBA-Finance, MPhil-Financial Management, (MSc-Software Engineering)
MA-English, MPhil-English
Post Graduate Diploma in Computer Applications and Programming
Certificate course in English language proficiency
Level 1 – Leadership and Management ILM – UK
Pursuing CMA-USA
Individual Member of Institute of Management Consultants of India


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