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Before Payroll Part 5: Setting up Payroll Accounts in QuickBooks

Today I will help you work on setting up Payroll Accounts in QuickBooks. It is  important that you have all of the payroll liability and expense accounts set up before running your first payroll so that you can track your liabilities and expenses correctly. Getting everything set up right beforehand will help save you trouble down the road as you accrue and pay liabilities. I will help you through setting up payroll expense accounts, payroll liability accounts, payroll items, and linking these accounts together.

Payroll Expense Accounts

The payroll expense accounts track all of your payroll expenses on the Profit & Loss. Here is a refresher on how to set up an account on the Chart of Accounts. You will need the following accounts:

  • Payroll Tax Expense- this account will be linked to all of the employer taxes. This account can be a general account or you can break it down into the following sub-accounts:
    • Social Security and Medicare Expense
    • State Unemployment Expense
    • Federal Unemployment Expense
  • Officer’s Salary Expense – you will need to separate out this account from regular employee salaries and wages for tax purposes.
  • Salaries and Wages Expense – this account will link to all employee wages unless they fall under Cost of Goods Sold.
  • Wages (Cost of Goods Sold) – this account is used for any wages that fall under direct labor such as in a manufacturing business. You may or may not need this account for your business.

Payroll Liability Accounts

  • Payroll Liabilities- this is the main liability account you will set up for all of the liabilities.
    • Federal Tax Withholding
    • State Tax Withholding
    • Social Security Company (Company over Employer as it causes less confusion)
    • Social Security Employee
    • Medicare Company (Company over Employer as it causes less confusion)
    • Medicare Employee

Payroll Items

To add a payroll item, go to Employees -> Payroll Item List -> Payroll Item Menu -> New

Important Point: Make sure you choose the correct tax tracking type for each item. I will have an article on this at a later date, but this is key to filing accurate returns and W-2s for your employees. If you don’t know, ask your accountant or get in touch with me and I will help you out.

There are a lot of items below; just set up the items you know you will need. Other items are examples for what you could use if needed.

Wages Payroll Items

  • Officer Salary
  • Salary
  • Hourly Wages 
  • Hourly Wages (COGS)
  • Commissions
  • Bonus

Tax Payroll Items

  • Federal Tax Withholding
  • State Tax Withholding
  • Social Security Company
  • Social Security Employee
  • Medicare Company
  • Medicare Employee

Addition Payroll Items

Ensure you set up these deductions from gross or net pay with the right tax affects, I will have to get to this in a later post, but leave a comment for more info.

  • Reported Tips In
  • Expense Reimbursements
  • Travel Advances
  • Employee Advances (if you have advances and repayments, add Employee Advances as a Current Asset Account)

Deduction Payroll Items

Ensure you set up these deductions from gross or net pay with the right tax affects, I will have to get to this in a later post, but leave a comment for more info.

  • Reported Tips Out
  • Loan Repayments
  • Employee-Paid Insurance
  • Employee Contributions (401k)
  • Garnishments (post to come on setting up the limits and such)
  • Child Support Payments
  • Employee Advance Repayments (if you have advances and repayments, add Employee Advances as a Current Asset Account)

Company Contributions Payroll Items

Ensure you set up these deductions from gross or net pay with the right tax affects, I will have to get to this in a later post, but leave a comment for more info.

  • Health Insurance – Company
  • Company Contributions (401k)

Linking Payroll Items and Accounts

When you go to enter the payroll items, you will be asked what expense and liability accounts to link the items to. Ensure you have these accounts set up prior to setting up the payroll items. If you get one wrong, you can always go back and edit it later. You will also need to set up rates for Payroll Tax Items, so have those available (here for more info). You will also need to enter a vendor for some items so that QuickBooks knows which vendor the payroll items are paid to. The following are some examples:

  • United States Treasury (Federal Tax Liabilities)
  • (Your State’s) Department of Revenue (State Withholding)
  • (Your State’s) Department of Labor and Unemployment (Unemployment Insurance)

 

There is a lot more detail that goes into setting up payroll accounts in QuickBooks along with payroll items that I will discuss in a future article, but these are the basics to get you started. Please let me know if you have any questions and I will do what I can to help clarify things for you.

Keep Reaching!

Mark

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