The most common withholdings according to US laws are: These retained amounts are not paid directly to employees, but they are paid later to government institutions or private companies. Performance obligations are related to withholdings or deductions from employees’ wages. Performance Obligations under Payroll Accounting For example, if the labor of employees served for manufacturing a product or asset, the compensation (including provisions) should be registered as cost of manufacturing the product ( inventory ) or asset and recognized as expense when the inventory is sold (through cost of sales). Note: Compensation for the labor of employees is not always recognized as an expense. For example, if an employee is hired on the first day of December but paid on the first week of January, the expense related to the labor of the employee must be recognized in December. The matching principle states that all expenses need to match in the period when all the related revenues are reported (it does not depend on the payment date). Under accounting principles, all accrued expenses must meet the matching principle. The sum of all the concepts listed above forms the accrued expense for keeping an employee on the payroll. They fund compensation paid to employees for their direct labor or as a consequence of mandatory benefits defined by legal requirements. Payroll costs are related to obligations (expenses) assumed by an employer. The key for payroll accounting is to recognize when a concept is assumed by the employer or the employee.Payroll accounting is essentially the calculation, management, recording, and analysis of employees’ compensation.