Enter Transaction for Payroll Using Bank Feeds 403

QuickBooks Online 2021 enter transaction for payroll with the help and use of bank feeds. Let’s get into it within two, it’s QuickBooks Online 2021. Here we are in our quickbooks online bank feed test file and prior presentations, we set up our bank feed information and put in some data into the system, which is now in what I would call bank feed Limbo and the transactions tab to the left. And then we’ve been adding that information into the accounting system to be helpful in creating the financial statements, including the balance sheet and the income statement, we now want to consider how payroll might fit into this system.


Note that payroll is going to be a complex type of issue. And there’s different ways that you can approach it, I do suggest talking to an accountant, preferably one that you pay just for the advice that they would give you on payroll so that they’re not biased, meaning if you’re talking to someone that you’re going to be paying for payroll services, obviously, their opinion could be somewhat biased in terms of what they’re going to tell you and what the best thing to do would be.



Whereas if you pay someone for neutral advice, and then go talk to somebody, I think that would be a better way to go. But in general, you can purchase payroll payroll is typically an add on feature, if I hit the tab up top, we see down here we’ve got the payroll information. And there’s different levels of payroll that you can look to to process the payroll within the QuickBooks system, it is typically an add on feature, you can get a sample of it here, we won’t go into detail in payroll or on payroll. At this time, we do have a whole nother course just basically dedicated to the payroll.



Now, however, we want to think about how different payroll systems might fit in with the help and use of bank feeds. So obviously, the first option we would have is if we were to run payroll within the QuickBooks system. Now note, when we run payroll in the QuickBooks system, we’re going to have to deviate a little bit from the cash basis system. Because if I go over to the desktop version over here, this is just so I can see the flowchart. You don’t need the desktop version to follow along.



But we talked about in prior presentations, the fact that sometimes, if we have an accounting system that’s more on an accrual basis, then it’s going to complicate our bank feed system if we want to basically make our bank feed system as easy as possible. In other words, if we want to rely strictly on the bank feeds, it’s going to become more difficult when we have accrual type transactions that we need within our accounting system.



We talked about having accounts receivable, for example, on the customer cycle, that will complicate the situation with regards to creating the financial statements directly from the bank feeds. If we process payroll within the QuickBooks system, it will also complicate things because we’re going to need to be generating reports that are going to be specific to the to the employees. And we’re also going to have to be dealing with payroll liabilities, that will be basically a cruel type of transactions that will need to be processed when we process payroll, for example, for the withholdings that we have for the employees and so on.



So we’re gonna have to, we’re gonna have to deviate or be a little bit more complex than just taking the information that clears the bank at or we can’t just simply wait until the transaction clears the bank in terms of a cash transaction and record it as payroll under that system. Another way you can think about it is we could have a third party that helps us out with the payroll, such as an ADP or paychecks companies that are outside of QuickBooks, but then help us simply with the payroll transactions, they specialize within payroll. If we do that system, then there’s two things we can do under that system.



And that system, the third party might be more responsible for providing the information to the employees, it would be required to provide, including the payroll information, year to date information, and so on the quarterly taxes and that type of stuff. What we primarily want in our system is the financial data to make the balance sheet income statement correct. So there’s two ways we could do that we could get the information periodically from the provider, which looks something like this, this is a basic kind of information that we could enter and then simply enter it into our system.



If we do that, we could still do it somewhat on an accrual basis, like a periodic type of basis. Or we could basically wait if they process the payroll, and we can just wait till the checks, then clear the bank being on a cash basis system under that method. And then we would make any periodic adjustments possibly at the end of the month or the end of the year, as would be necessary for financial reporting or tax reporting purposes. So let’s kind of consider these methods as we go.



So if you enter the data into the QuickBooks system, or if you have a third party person provide the payroll, you can think of the payroll and something like this is going to be a very basic kind of example, obviously, payroll gets more complex with more employees, and if you have state tax obligations, and 401, K’s and so forth, but the basic idea is is going to be the same for much of these types of items. So That’s why it’s complex. It’s complex, just because a lot of not too complex things, when you build them on each other, and you have a whole bunch of them that are that are reliant on each other, then it becomes somewhat complex.



So in any case, we’ve got our two employees that we can imagine here, say the first employee earned 4005 8333. That would be the total earnings, gross earnings, we would have to take from that employee Social Security, Medicare and income tax, their federal income tax, for example, these being the federal taxes. And that would be you know,



Social Security’s point oh, six 2% of income point oh, 45145 for the Medicare and then the federal income tax would be based on what they filled out in their w four, that’s the most complex one due to the progressive tax system, the net check that actually comes out of our bank account, then if we just have this information would be this here would be the total minus the taxes that we are withholding. That would be the 3005 1271 in this case.



So what we expect to clear the bank account when we’ve processed the payroll would be this amount, it’s not going to clear the bank account, however, until the employee actually gets the check. Or if it’s electronic deposit, it’ll be somewhat quicker. But if it’s a check, they got to get the check, then deposit the check and so on, then we also have our portion of social security and medicare that we are going to have to pay, we have not paid our portion, this is the employer portion of the federal taxes for Social Security and Medicare, we would not have paid that, at the point in time that we process the payroll, we would record a liability at that point.



And then at some point in the future, we would have to pay off the the the what we took from the employees for their payroll taxes, as well as our employer portion of payroll taxes. Similarly, we would do the same thing for another employee, or another employee, same kind of system. Here’s the net check. Or here’s the net check. Here’s the Social Security and Medicare.



Now, if we did this in the QuickBooks system, it would record this as we go from a journal entry standpoint, it would look something like this, the payroll expense would be for the entire expense, even though that’s not how much cash left at the point in time that we processed the payroll because the check would only include the amount that went to the employee at the point in time we process payroll, which would be subtracting out the amount we withheld.



And then the payroll liability would be that the liability and this is kind of the accrual portion right here. Because this is something that we owe, that we have not yet paid. We’re deviating from the cash basis method when we when we record this liability, in essence, and that would be the liability that that we would have, that would be the difference. And then at some future point, we would pay off the liability as well, and then decrease the liability and decrease the checking account at that time.



Of course, once again, when we decrease the checking account, and pay off the liability, that’s when we will see it clearing through the bank feeds. So there’s going to be this time delay between a cash basis and accrual basis with these these liabilities that we’re pulling out of the check. So we can see that on Erica’s check here as well. Notice that we could record this basically as employee by employee into our system. And it would do so if we were to process payroll through QuickBooks, it would kind of record the detailed information per employee.



If we were to have a third party person, like an ADP or paychecks enter it, we also have the option that we could just enter this transaction in the system as one lump sum transaction like this. However, if we were if we were to do this and try to tie it out to the bank feeds what clears the bank, we would have to recognize the fact that the bank is going to show it in separate checks. And if I recorded in one transaction in total, then this account right here is going to be something that’s going to be a little bit more difficult to reconcile.



So those are just a couple things to concentrate or think about. And then of course, we’ve got our portion of the payroll taxes, which we would not yet have paid. So there’s no effect on the checking account at the point in time we process the payroll. But at some point in the future, when we pay off the liability, which will be you know, sometime after the payroll, whether we pay payroll weekly, bi weekly, semi monthly, monthly, then we’re gonna have to pay the liabilities off to the government.



At some point after we process the payroll, that’s when we’ll see then these be paid off as well. So if we ran this through QuickBooks, then what we would have to do is enter the payroll, we would enter the payroll transaction, which would be something like processing payroll, this is the QuickBooks desktop version, but we would process the payroll here. And then when we go to the bank feeds, in the online version, we process payroll here, but it’s a little bit harder to see without the flowchart.



We’d set up the payroll we process the payroll, then when we go to the bank feeds, we would see it clearing within within the bank feeds and we would have to use our matching system. So I’m going to go down here and pretend we’re using this Verizon Which is, of course, the telephone. But let’s imagine it’s a payroll transaction and I go into the Verizon transaction, we would see then this matching out.



And we would use, we would use if this was payroll when an employee we were paying off, then we can use the matching feature to basically match out what we entered within the QuickBooks system by processing the payroll, which would actually record a check a payroll type check, we could match that out to what clears the bank. And that system, then the bank feeds would basically be used as like a reconciliation type of process, it would help us reconcile our Trent transaction to the bank.



If on the other hand, we had a third party then was was the person that did the payroll, we could then enter this into the system, we could enter a cheque by cheque or one journal entry into the system from the third party, the ADP or paychecks from their report, remaining somewhat on an accrual basis, but not needing as much detail in the transactions as you would need. If you’re providing this information, say to the employees, you got to provide, you know, year to date information and paycheck by paycheck information, employee by employee, so on to the employee.



So it would be a little bit easier to us to just enter the data into our system for the financial purposes. So we could take say this report and enter a transaction and possibly enter like in this case, we could enter just simply a expense type of transaction. So we could say, All right, let’s add another tab, right click, duplicate the tab. And let’s just I’m not going to actually record this, but let’s just pretend we got this report from ADP or something like that, then I can say I want a new item at an expense type of transaction, which is going to decrease the checking account.



And we’re going to enter in the detail here, and I would enter it, I’m going to say check by check. So I’ll do it for Adam Adams transaction. So we’d have the employee name, and so on and so forth. And then of course, down here, we would have payroll expense. So I’m just going to make this this up payroll expense, I’m going to make an expense, just a normal expense for our purposes. And I’m going to make it an other business expense, and just simply call it payroll, I would we would record that. And that would be for the full amount. Meaning that would be the amount that was earned.



And that would be the four or 583 33. So it would be 458 3.33. But then we would take out from it, the payroll liabilities, payroll liability lie below bill T’s, and this is the accrual component. And that would be a liability type of account. So that would be an other current liabilities type of account. So it would look something like this, and we’re gonna say save that. And I got to put that in here as a negative. So that would be the sum of these items, or in other words, this 107063107063, negative 107 0.63.



And the net check then would be this 351 270. So that’s the net check. The 351 to seven, it’s rounded, there’s a rounding error of a penny. Let’s go ahead and record it. Let’s say this one is going to who did I say, Adam? I’ll just call it Adam. Adam, and then the first thing man said to a woman is madam, my name is Adam. Anyways, we’re gonna say this happen on Oh, 615 2006 1520. And then that looks good. So let’s save it. We’re gonna say save it. And Okay, so then we would see this on our financials. So let’s go down to the reports on down below.



Let’s then open up the balance sheet report, the good old bs report. scrolling up top range, change it a 101 to zero to 1230 120, run that report, closed up the hamburger hold down Control, scroll up just a bit to the one to five, I’m going to add another tab, right click Duplicate that tab, adding another this one we’re looking Of course for the P and L Profit and Loss income statement reports on the left hand side and then we’re going to go down to the profit and loss and we’ll change the dates up top from a 101 to zero to 1231. to zero, run that report, close up the hamburger and so there we have it.



So down here on the payroll we have the full amount for the growth amount of a check. That’s not what’s going to clear the bank off right off. What’s going to clear the bank if I if I go back to the the balance sheet is going to be the amount that we recorded for The expense amount for the payroll, which was going to Jones here. So we had then this one. So 630 on Jones. So that was four. That’s the wrong job. It was Adam, what am I talking about? It’s a 351 270. So there’s the 3511 270. This is the amount that we would see clear in the bank first.



So at some point in the future, it would clear the bank and then we would match it out here. So in other words, if I go to my bank fi transactions, and we went to like that Verizon, even though again, this isn’t the same amount, of course, but if I was to then match it, then I would be able to find that that transaction and be able to to match it out. So I’m going to close this out now.



So we’ll close this out, and I’ll close the hamburger up top. And then the difference between the two, of course, is is a liability. So if I go back to the to the balance sheet, scrolling up top and back on onto the balance sheet, then the difference between those two is going to be our liability. And that’s kind of the cruel thing, this liability would then be paid in the future, when it got paid in the future. That’s when of course it would clear the bank.



So we processed the payroll, we took money from the employee, and then we got that check would clear, then we paid this money to the government on behalf of the employee in this case, and that and then that would clear, of course, at some point in the future, and we would see it flow through the bank feeds, as well. So in that case, again, we would have to do it first in QuickBooks, and then use the bank feeds to verify. And that’s, of course, similar to what would happen if we actually processed the QuickBooks the payroll through through QuickBooks.



Now, the other method, we could try to be on a cash basis method, I could say, hey, what you know, why don’t I just wait until it actually clears? Instead of recording this from the third party? If it was done by ADP or paychecks? Why don’t I just let them process the paychecks. And then this amount will clear the bank right, this amount will clear the bank and I’ll just record it to payroll expense, which will be wrong because it should be this plus this.



But after after I’ve been pay off the liabilities, which will happen at some point in the future, I can just wait till this clears. Right. And then I’ll just record that to payroll expense as well. And then at that point, it’s just a timing difference, we would be back at the same point in time. In that case, the same with the same with the employer portion. I just won’t record the liability, I won’t record the accrual purpose, I wait till it clears the bank.



And then I’ll just simply record the the payroll expense at this point in time or the or the liability, I might put it in all into one account, payroll payroll expense, or I should break it out between payroll expense and payroll taxes. But in any case, I can wait till I clears. So in that case, I’ll be I’ll be wrong for a little bit of the time. But it might work because at the end of the month, if I need to for financial statement purposes, I can then do an adjusting entry based on the reports provided to me by ADP or paychecks to shore it up.



And at the end of the year in which might be for small businesses, all I really need is tax preparation help, I can do the same thing I can help I can get the information from ADP or paychecks, such as the W three w twos 940, ones to quarterly payroll from ADP or paychecks provide that hopefully to my accountant, my CPA or my tax preparer who can then make the adjustments necessary for the tax preparation at the end of the year periodically.



And so that could be another system that you could use. And that for a bookkeeper could be useful because you can say, hey, look, I’m a bookkeeper, I’m going to do this on a cash basis system basically here using the bank feeds, I then can associate myself possibly with a payroll provider. And that could be a good relationship. If you’re not doing payroll and you didn’t then work with a payroll provider that then provides you the payroll information helps you to process the payroll, and then work with an accountant or CPA firm for tax preparation.



As long as everybody knows what page they’re on the payroll provider is the one that’s going to be processing the payroll, and then providing the information and helping to process the checks. We then use the bank feeds to record on a cash basis method. Then we use the CPA firm to make periodic adjustments for taxes or financial statement purposes. So in that case, for example, if I went back on over to QuickBooks, and I just took this telephone, this telephone transaction once again, we’re gonna say we got the telephone word, the telephone, there it is. And I just called this payroll. Let’s say this was Adam.



Madam, my name is Adam. And then I’m going to add that and I’ll just call it a vendor. And we’re going to say this is for payroll payroll expense. And then that looks good. I’m not gonna I’m not gonna create a rule for it or anything and I’m just Can I wait until this cleared the bank? Right Adam cash the payroll check it cleared the bank. And so this is the net check, not the gross check. But I’m just going to go ahead and confirm that. And then what would happen on the financial statements just like a normal expense, what would happen, if I refresh the reports, it’s going to be decrease in the checking account the other side, then go into the income statement, running the report.



And that would be for the the expense here, that would be going through the payroll expense. And then what would happen is later we would pay off the payroll liabilities with the help of ADP or paychecks. And then we would do the second transaction when that when that takes place. So the second item, then, when we pay off the payroll liabilities, would would be something like if we go to the second telephone here, we could say, let’s pretend this is now the second payroll liability that comes through, we’re paying off the payroll taxes, then this would be going to something like the IRS, let’s say would be going to the government in some way, shape or form that we’re paying off the payroll taxes.



And I’m going to go ahead and save that. And then and then the temptation here would be putting it to payroll taxes. But if if the portion that’s going to be for the employee payroll is actually part of payroll expense. And that’s why it would be a little bit easier if we were to group everything into one category for payroll meaning call it all payroll expense, even though you kind of should be breaking out the tax portion. But the tax portion you need to be breaking out is only the employer portion, not the employee portion. That’s why it gets a little confusing.



So I’m just going to put this to payroll expense, assuming that these are the taxes that we paid on it, and group it all into one account here, and then it’ll kind of net out in that one accounts, I’m going to go ahead and save that. And that would of course, clear it at some later date, and then it would net out in our in our detailed account down here.



So I’d have then the two items we’re imagining, then these two items being the initial check that cleared, and then later the payroll liabilities that cleared, which in theory would include both the employee II portion, which should be included in payroll expense, and the employer portion, which is the portion which would be the payroll tax expense, but they’re both expenses.



So if we group them into one expense account, that should be we could do that. And again, if we’re relying on the accounting firm at the end of the year to make the adjustments, if they want to break out between the expense and and the payroll expense and the payroll tax expense, they can do so and then hopefully they’re going to make the proper breakout for the proper deductible amount or reportable amount with the help and use of the reports that will be provided by the third party such as a paychecks or an ADP

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