A payroll register shows gross earnings of $300,000 and deductions of $120,000. What is the entry to the payroll expense account?

• A. $120,000
• B. $180,000
• C. $300,000
• D. $420,000

Answer: (C)

The amount recorded as payroll expense is the gross earnings, not net pay or deductions. The company incurs a cost of 300,000 for labor, which is what goes into the payroll expense account. Deductions of 120,000 are amounts withheld from employees and are liabilities to be remitted, not an expense themselves. Net pay to employees is 180,000 (gross 300,000 minus deductions 120,000), which is the cash the company actually pays, but it doesn't determine the expense value. So the entry to the payroll expense account is a debit of 300,000, with the corresponding credits setting up liabilities for the deductions and for the net pay as appropriate in the ledger.