Best practice ledger account types for payroll?

• A. Assets, Liabilities, and Expense
• B. Revenue
• C. Equity
• D. Gains

Answer: (A)

Payroll involves three kinds of accounts in a proper double-entry system: an expense to recognize the cost of labor, liabilities to reflect the amounts you owe for withholdings and for net pay, and an asset because cash is used to settle those obligations. Recording payroll this way shows the true cost and the obligations created in the period, and it aligns with how payroll moves from gross wages to tax withholdings and to the paycheck. For example, when payroll is processed you debit a Wages Expense account and credit liability accounts for withholdings and for the net pay due; when you issue payment you debit those liabilities and credit Cash. Other options don’t fit because revenue accounts cover income, equity accounts relate to ownership and distributions, and gains reflect peripheral profits, not ongoing payroll costs and obligations.