QuickBooks Desktop 2023 Enter transaction for payroll using bank feeds. Let’s do it with Intuit QuickBooks Desktop 2023. Here we are in QuickBooks Desktop bank feed practice file going through the setup process we do every time view dropped down,
00:19
we got the hired Icon Bar, open windows list checked off open windows, they’re open on the left, reports drop down company financial, let’s open up the P to the L the profit to the laws change the range from a 101 to two to 1231. Two to customize it.
00:35
So we can go to those fonts, those numbers and change them on up to 14. Okay. Yes. And okay, let’s go to the reports. Ultra vase one more time company, financial this time the balance sheet, and then customize it to change that range from a 101 to two to 1231 to two, and then the fonts to the numbers.
00:58
And we’ll bring it up as has been our custom to 14, okay, yes. And, okay, let’s also open the bank feeds. That’s where our focus is banking, drop down bank feeds, you got the bank feed Center, which would only be there if you turn the bank feeds on, which we did in the prior presentation.
01:18
And then I’m going to go to the unrecognized items. We’re focused now on the payroll. So we got to give a just a general overview of the payroll to think about the complexity, complexity of related to it with regards to the bank feeds.
01:33
So let’s go back on over to the homepage. And there’s two primary ways that you can set up your payroll, this is important for you, if it’s your business, it’s also important for you to think about how you might structure your bookkeeping system and who you might work with in order to structure your bookkeeping system.
01:52
So and you want to also make sure that you if you have employees, or you’re starting or you’re thinking about taking on employees, one, do they need to be employees, or should they be contractors?
02:05
And if they are employees, then should you be accounting for them inside of QuickBooks, which means you usually have to turn on QuickBooks and usually pay more for QuickBooks to do its thing? Or do you want to be paying an outside service to help you handle payroll? Now, if you’re a bookkeeper,
02:25
also, you want to be thinking about that and say, Okay, do I want to try to automate my system with the bank feeds possibly, and work with outside third party payroll providers, so I can then have a system that will be automated, and then have a nice networking system with an outside party,
02:43
which will be my go to kind of setup or do I want to walk, do the payroll within QuickBooks, no matter how you set it up, if you put the payroll within QuickBooks, you’re going to be deviating from our simple cash based system based on the bank feeds,
03:01
you can’t just record a transaction for payroll from the bank feeds and use that as as your recording of the transaction as you can with other outflows. In other words, the payroll you can think of it as just like the vendor cycle, money’s going out.
03:18
If you were on a cash based system with money going out, you would be using the bank feeds to write in essence, a check form, checking account and going down with it the other side, go into some expense account,
03:29
like telephone, utility, so on and so forth. That would be the same thing with employees, you would just be saying, Here’s a check. And that’s for Payroll Expense.
03:39
But then you got the government that came in and just totally messed everything up, requiring things like withholdings and whatnot and other human resources requirements and reporting requirements, and 940s and 940, ones, and w twos and W threes that need to be reported, and so on, and so forth.
03:57
So you have a whole lot of added complexity, so much so that payroll has become kind of a specialty in and of itself. So that means that if we do the payroll within QuickBooks,
04:10
we would have to process the payroll, and then match it to the bank feeds as to things as the payroll clears the bank, or we could try to stay in like a cash based system and see if we can work that out with a third party provider as they process the payroll deal with the Human Resources deal with the W twos,
04:29
and the 1090 and the W tos and the 940, the 941 and so on and so forth. Okay, so first, how would you turn on payroll, you go to the Edit, drop down, preferences, and we can go into the payroll items, which is right there. And then company preferences. Now normally, you’re going to have you’re gonna have to pay for payroll,
04:51
and I won’t go into the detail for the tiers of paying for payroll, but just note that you’re going to want to if you run payroll within QuickBooks pay for The payroll because this although there’s no one thing in payroll that’s complex, meaning calculating Social Security,
05:08
withholdings isn’t hard fit calculations are harder, but not that hard for each individual. But when you add all those calculations up, the likelihood of making a math error or something like that becomes quite high. If you don’t have software to help you out,
05:25
the software also helps out with the quarterly reporting and the yearly reporting, that being the 940 ones quarterly, typically, the 940 yearly, typically, the W two is yearly typically, and the W three yearly typically, just so you can see how it works, though without having to pay for the added item, let’s just turn on the manual payroll,
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and we’re gonna say, No, I’m just gonna say next, and activate. And then manual payroll has been activated. So if I close this, now we’ve got this line down here,
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if you don’t have that arrow, that line or that arrow, then you don’t have payroll turned on. If you do, then you’ve got some kind of payroll turned on.
06:07
Now, if you process the payroll through the QuickBooks system, then what’s going to happen is first, you can enter the time, it’s not a required to enter the time, because you might track the time somewhere else with regards to the payroll processing.
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And then you’re going to process the payroll, which means at the end of the day, you’re going to make the payroll checks or the electronic transfers to the actual employees. And you might do that, depending on how you set up the payroll.
06:35
Whenever you choose, the common way to do that would be weekly, you know, bi weekly, semi monthly or monthly. This will at the end of the day generate the decreases to the checking accounts, which would be a type of check form, but a special type of check form and also give you the withholdings, which usually create a liability.
06:56
So those liabilities become a cruel kind of things, which means they’re going to mess up our bank feeds, right. So they’re going to be liabilities over here for Social Security,
07:05
Medicare, federal income tax for the employees fit. So So then we’re gonna have to then after we process the payroll, pay off the liabilities, which is the pay liabilities form, which is going to then once we do this make a check form, basically,
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but it’ll be a special widget form check form that will decrease the check in account and then lower the liabilities that we increased when we processed the payroll.
07:33
So if you have everything set up properly, that can run pretty smoothly. But it doesn’t does it it means that we can’t just use the bank fees to record the transaction.
07:42
How does the bank feed fit into that process? Well, we’re gonna pay the employees. And then after we paid the employees, at some point afterwards, we’re going to then pay the liabilities to the government.
07:53
And whoever else we have to pay liabilities for like, like health and health insurance and so on. And then those things are going to clear the bank.
08:00
So if I go into the bank feeds, we’re then going to have to match the payment here using the matching item, which will often kind of do this automatically. If everything ties out properly, the system will kind of be able to, to see the match, and it’ll tie it out. And we can just match it.
08:18
Therefore the bank feeds are being used not to create the financial transaction, but rather, just to help us out in essence with the bank reconciliation process, timeout our books to the bank’s books, so we’d be more than a full service accounting system.
08:33
With regards to payroll, there’s no way really around that due to the complexity of payroll and the need to use the widgets and so on. If you’re going to process payroll within QuickBooks.
08:45
Now, the other way you could do it is say, okay, maybe I’m going to try to say I want to make my internal books on a cash based system as best I can.
08:54
And then with regards to payroll, I’m going to work with a payroll provider to do all the other stuff, meaning, provide the stubs to the employees,
09:03
W twos, W threes to 90 nines, or I’m sorry, 940, ones 940, preparation, and so on. And then they’re going to give me the information just that I need in order to make any adjustments periodically.
09:18
So how might that work? So just so you can get an idea of this for your own business or possibly, if you’re a bookkeeper, how much you work with a third party, and try to keep everything as simple on a cash based system as you can.
09:31
And then maybe make periodic adjustments for small businesses possibly only at the end of the year, so that your financial statements are correct on whatever basis is needed, either a financial basis if you have financial reporting, but possibly just for a tax basis, so you can properly record your taxes.
09:49
So you might say if we process payroll, usually you get it you get a form looks like this, something like this, that this is a simplified kind of register or payroll Register. And let’s say we have these two employees,
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Adam and Erica here, and Adam earned on this payroll 4005 8333. And then we took from Adam, Social Security, Medicare and their income tax, these are the common three federal taxes we would take,
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we could also take from Adam, voluntary withholdings, like insurance and, and so on an IRA 401k. I mean, so this is, so this is the calculations, I won’t get into the calculations.
10:34
But the net pay would then be this minus these three, meaning what Adam earned minus Social Security, Medicare, and income tax, therefore, the net Check that would go out is 3005 1271.
10:50
That’s what Adam would get. And then we on our side also have to pay another matching of the Social Security and Medicare for our payroll taxes as the employer.
11:04
And then Erica, let’s say our other employee II made $800, Social Security withheld, Medicare withheld, that means she’s gonna get a net check of the
11:14
I’m sorry, and then the income tax withheld a net Check of this 628 80. And then we have to pay Social Security and Medicare on top of her payment that is in place.
11:27
And so and then we can total these up. Now note that you can kind of imagine when we would record this into the system, as if it was a journal entry by journal entry transaction. In other words, if I enter the transaction for Adam, we would say, hey, we’ll expenses for the full amount, but he only got 3005 1271.
11:50
That’s the decrease to the checking account. And then we would increase the liability of the 1070, which represents the withholdings that we’re taking out, and then Erica received 800 payroll expense account, then she only got the the 628 AD,
12:10
the difference being Social Security, Medicare, federal income tax, in this example, or we can think of them as kind of clumped together as if they’re just one employee. So I can use the total column.
12:24
And I can say, well, the total Payroll Expense should be 5003 8333. And then the amount that came out of my checking account in total was 4001 4151.
12:38
And then the difference is the total withholdings, that that were taking out the 1002 4183. So so I could like periodically make adjustments based on these registers that are given to me and put them into the system to make my financial statements correct.
12:59
But still not have to deal with the with the recording of the pay stubs to, to each of the employees, and they should be able to process then the quarter 940 ones and the 940s.
13:13
Now, if I wanted to be on a cash based system, I might say, Well, why don’t I just wait till everything clears the bank because it’s only basically a timing difference, meaning I have the third party person process the checks, I’m going to see this check.
13:26
And this check, clear the bank feed, right. So when they clear the bank feed, I will see them over here in the bank feeds, and possibly I just record them, like I normally would if it was just as if I was paying a vendor, and that would just say,
13:42
Okay, there’s going to be a decrease to the checking account, the other side is going to go to Payroll Expense, right. And so that will not be exactly right on an accrual system. Because what actually happens, you’ll note here, when when, when this person got a check is that even though the check is that amount,
14:01
we actually had a liability and accrual component of this, this liability that increase or in total, this liability, that’s going to increase. But then we are, of course going to pay off that liability shortly.
14:15
So if I have the third party payroll provider, processing the payroll when they pay off the liability, then of course, that will clear the bank.
14:24
And I’ll record I’ll record that as basically Payroll Expense again, at that point in time and I can group them both into basically Payroll Expense, not breaking out Payroll Expense and payroll tax expense.
14:38
So that would be the simplest thing to do on on our end just be dependent on the bank feeds. We just wait till everything clears the bank and then record it as basically Payroll Expense.
14:50
Then at the end of the year, what we’re what we’re going to have to do is at least for taxes, record our books that would be appropriate for taxes.
14:59
So if there are any adjustments that need to be made on a yearly basis, we can provide our tax preparer or, or our accountant with the registers that are given to us by the third party provider.
15:12
And they can adjust for any accrual components, any payroll liability that needs to be recorded, as well as any, any breakout between Payroll Expense and payroll taxes, if that’s necessary, based on the reports, just periodically, right at the end of the year.
15:30
So we can think of the adjustments from an accrual component to from a cash basis to an accrual basis, or to attack spaces, whichever is needed. Periodically, we can do that at the end of the month or the end of the year.
15:43
And that allows us if we wanted to try to make our books still comply with a cash based system, and try to just automate the whole process as easily as possible, and then just do those periodic adjustments at the end of the year.
15:59
So that’s a system that you could think about setting up if you’re a bookkeeper, that might be an easy kind of system to set up so that you can,
16:07
you know, automate everything and still have a workable process to make any periodic adjustments at the end of the year, and then work with a solid payroll provider that you trust, and then work with a solid accounting firm, to help do the tax preparation and make any adjustments at at like the end of the year.
16:27
So that’s one way that you might think, or a couple of ways, you know, you might want to think about how you can set up the payroll. And then of course, when you enter it into the into the system here, let’s just see a payment,
16:38
maybe I won’t enter it, but I’ll just look at one. And I say we have a payment, let’s say this was like a payroll check, even though it’s a small dollar amount, we can then just record it to Payroll Expense, right, we’ll just record the other side to Payroll Expense.
16:55
And, and even though this is a net Check, and not the gross check, and then when the payroll liabilities are paid, let’s say this was a payroll liability, I will still just record this basically the Payroll Expense, because when I pay off the payroll liability,
17:13
I note that when I pay off the payroll liability and includes both the employee and employer portion of the payroll taxes, and really the only part that I should break out as the employer is as payroll taxes versus Payroll Expense is the employer portion.
17:32
So so it’s not going to be easy for me to break those two things out between Payroll Expense and payroll taxes on a cash based system.
17:40
But I don’t really need to because again, I’ll just I’ll just put it all to Payroll Expense. And then I’ll let my accountant at the end of the year, do the adjusting entry.
17:49
And at the end of the year to adjust it to whatever basis is needed. I’ll let the payroll provider deal with the human resources, providing the payroll stubs and making the making the quarterly payroll tax returns, the yearly returns and the W two and so on.
18:05
So that’s one system that that you can think about payroll often throws a wrench into the into your whole process. So you want to make sure that you set it up right the first time. If it’s your own business.
18:18
And if you’re a bookkeeper, you want to think about what’s my default system that I can that I can set up and what kind of network can I be working with, to make this as efficient as possible?