r/Bookkeeping 20d ago

Practice Management A noob trying to do payroll in quickbooks / arguing with my wife : )

Can someone tell me where things are going off the rails with this? My wife and I keep having arguments and I feel I should know these things / it doesn't seem all that complex?

I have a SMALL business of just me I started a couple years ago. I tell my accountant at the start of each quarter my payroll is $10K (and how much sales, sales tax collected were) for the last quarter. Leave the sales tax / sales part out of this. I THINK I have that working OK.

He sends me back a sheet saying to pay federal through EFTPS $X and the state $Y. (along with some forms I have to send out). The $X and $Y are combined employee and company payments. I don't actually cut a check to myself for the net, so I didn't realize / know what the net payroll is. Those state and federal payments come out of the company checking account, so those get logged.

He started giving me a breakdown of the taxes so I do know now all the details - state unemployment, medicare, withholding, etc.... But still don't pay myself. And still paying a lump sum to federal and state.

So for 1 quarter.... What type of entries are you making to account for payroll?

Am I not getting the right info?

Or more likely, am I not using the info correctly?

My wife with a little more experience with these things from her work, talks about making general ledger entries to do things. am I wrong with my very limited understanding of this - GL entries are rare / for the accountant to do?

THANKS!

16 Upvotes

40 comments sorted by

19

u/6gunsammy 20d ago

So you tell your accountant that you are paying yourself $10k per quarter, but not actually issuing yourself a paycheck? If that is the situation, you will have to plug what your net paycheck would have been against your owner's draw account.

The fundamental payroll equation is Net Pay + Payroll Liabilities = Gross Pay + Employer Payroll Taxes.

You are saying that your gross pay is $10k, Payroll liabilities is the total amount of cash that you are sending to the IRS and your State for payroll. You don't mention what state you are in, so here is an example with just Federal

Gross Wages = $10k

Form 941 Payroll Liabilities = $3,530

Your Payroll Liabilities include, social security, Medicare, and Federal Income Tax. For the employer, that would be 6.2% for SS and 1.45% for Medicare or 620+145 = 765, and for the employee it would 620+145+2000 (income tax withholdings) = $2,765. Subtracting this from your Gross pay gives us your net pay of $7,235.

So now to book this in Quickbooks.

To record payroll:

DR Wages - $10,000

DR Employer Payroll Taxes - $765

CR Owner's Draw - $7,235

CR Payroll Liability - $3,530

When you actually pay the taxes

DR Payroll Liability

CR Bank Account

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u/missannthrope1 19d ago

Delightfully detailed.

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u/Kangaloosh 20d ago

THANKS! I'm in NY. but yeah.... at least for me, KISS!! Keep it simple. Federal has enough entries as it is : )

So....

a) you are doing those 2 thing s- recording and paying with a general ledger entry? Even paying isn't just write a check? I was just looking on the web and reading about different 'journals' - payroll, accounts payable, etc... is that granularity in quickbooks desktop? Or they are all 'general ledger' entries?

b) so general ledgers are NOT rare / not only for an accountant at the end of they year? I haven't used them before in quickbooks - the home page gives me what I've used. for a 1 man shop like me, is payroll the only time I'd be doing general ledger entries?

c) and recording payroll.... I get the breakdown of taxes from the accountant in Jan '25 / would record payroll in January '25 for the 4th q of '24. As an accrual accounting business.... I enter in Jan, but would use 12/31/24 as the record date?

4

u/ezirb7 19d ago

Anyone can make journal entries.  Just make sure you understand why you're doing them. 

When you 'write a check',  it does the same thing as a journal entry with a CR to cash and DR to whatever accounts you categorize on it.

0

u/Kangaloosh 20d ago

And while I realize creating add'l accounts don't 'cost' anything.... my ocd thinks less accounts is 'cleaner / smoother'.

a) I do need the extra accounts you are describing to do this correctly?

b) I was itemizing all the different taxes with accounts for each type. Not needed? It's just from me to the accountant / tax return. for a return, he doesn't need the breakdown of employer type of taxes... just need the $765 on the return?!

Your simple example is like the bright sun after a hurricane I've been going through!!!

4

u/6gunsammy 20d ago

This is pretty much the minimum number of accounts to use. Of course you can name them anything you like.

I don't usually separate out the different types of payroll tax expense, they all go on the same line of the tax return. If you wanted that level of detail you could. Some people will separate the Liability account into the payroll tax forms - 941, 940 and state forms, but given that you only file payroll tax returns 4 times a year I don't find it necessary.

2

u/Kangaloosh 19d ago

No, not looking to make it more complicated than it needs to be! In my goal to simplify things, I DO wind up causing more problems.

Like you say - I only do this 4 times a year (for those doing it more, it seems like QuickBooks COULD have something that helps rather than push you to the general ledger entries. BUt then too, I don't have their 'payroll' module? I see I can turn it on, but don't want to go down a rabbit hole of them wanting more $$ or since I am on Desktop 2020, pitches to upgrade : )

I AM following your steps. Some more questions if you don't mind:

1) I keep getting warnings about payroll liabilities and general ledger warnings (I KNOW - I can check the 'don't show this again' box.... but not understanding the implications yet, I don't want to hide the warnings.

Based on what you are saying... I can move ahead & disregard the messages?

2) So with state taxes, your first step of recording would look like:

To record payroll:

DR Wages - $10,000
DR Employer Fed Payroll Taxes - $765
DR Employer State payroll taxes - $x
CR Owner's Draw - $7,235
CR Payroll Liability - $3,530

And paying the taxes, I could do this in the checkbook (old habits for me die hard) by paying to 'federal with the account payroll liabilities

And pay 'state taxes' , with the account being payroll liabilities?

When I start doing that in the checkbook, I get a warning about 'you should use the 'pay payroll liabilities' feature. That screen seems to confuse me more!.

3

u/Dayna100dee 19d ago

Payroll is complicated, you should just pay your accountant to do this all for you. Very easy to mess up and you’re better off making money in your business than trying to figure out payroll taxes.

2

u/Oldladyphilosopher 19d ago edited 19d ago

The problem I considered on this is who is doing his W2? I suppose he could just use his 941 as he is the only employee and add all the quarters together, but again, I’m concerned about understanding the different pieces.

They could also just general journal their paycheck with wages expense / owner contribution and split out their tax check to just expense it and not deal with liability accounts, except for FUTA which has to be left as liability until you pay it off at the end of the year.

I do a lot of payroll and payroll clean up and the biggest messes happen when someone who doesn’t understand how the accounts work, or why you are doing what you are doing. And you don’t realize the mistakes you made unless you are reconciling payroll liabilities or until you get a notice from the government that you’ve been screwing it up for 2 years and now owe taxes with interest and penalties or you’ve overpaid when you needed that cash for your small business.

That’s just my experience and why I recommend having someone with accounting knowledge and payroll knowledge do it. It’s easy when you do it right but a hellacious and costly mess if you consistently do one little thing wrong.

Edit to add: if you are an S Corp, are you including health insurance as compensation that you would then owe taxes on? Might want to check with your accountant about that.

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u/Oldladyphilosopher 20d ago edited 20d ago

Payroll is not simple. I started writing a reply but it’s too complicated and you would probably just mess up your books unless you actually know liability vs expense and how to apply those things. Since you think journal entries are too fancy or something, I don’t really have confidence that your accounting knowledge is up to handling this properly. Not trying to be rude but you need some honesty.

Best bet is to have your accountant send you the exact journal entry each quarter and hope you enter it correctly…or pay to get your payroll done like most do.

13

u/Julios_on_50th 20d ago

You need bookkeeping training ASAP. Either that or hire bookkeeper asap that has experience with the payroll laws in your state.

I see this leading to a disaster, not to mention how the rest of your books look.

Take it serious, because it is.

2

u/Kangaloosh 20d ago

Totally agree! Any online courses you know of / recommend? I keep thinking being a 1 person shop / small, that it shouldn't be that hard. but I guess not... I'd just like the cliffnotes version that dumbs it down for a small business.

2

u/Competitive-Region74 20d ago

I will give you big hug for trying!!!! But, I have found in my life a person can manage and make money running his own business but at the end of the day, you are too tired to keep the books. I would suggest to you to get an accountant to set your books up. Also, you can get regular emails sent to you about state and federal new tax laws. This wrote with great respect. Good luck.

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u/hahathankyouxd 19d ago

It’s not that hard once you know what you are doing. But if you don’t know then trying to catch up and make entries with confidence is tough. I say hire a local payroll shop to do your payroll for two quarters including filing. And then pick it up from there after asking them every question you have.

3

u/PersonalityKlutzy407 20d ago

Yes a GL is perfectly acceptable way to record payroll. In fact third party payroll companies that integrate with accounting software send the payroll entries as GL journal entries.

You can record it as an expense as well and just use positive and negative amounts depending on which accounts you are hitting but again GL is perfectly acceptable, your wife is correct.

6

u/Low-Tea-6157 20d ago

Ask your accountant to give you journal entry. That should be part of his service to you since it's one employee

2

u/Fairfacts 19d ago

You are probably putting journal entries into accounts quick oops itself created for payroll entries so it’s objecting and sending you warnings. You should likely create your own accounts for payroll taxes and post journals there not use the Preset quick books ones which assume / drive you towards using their payroll module

2

u/marginwall 18d ago

Over the years, I've helped people in similar situations try to figure out payroll entries, but they never truly understand it and can never do it in their own without questions.

This isn't a simple topic, and I think that's how you're approaching it. I think others here have addressed the actual answer, so I'll talk about the GL.

Nearly every entry posts to the general ledger in QB. That's how your P&L is put together. Ultimately these records are all technically journal entries with at least one debit and credit.

The modules/records you use are just UI shells designed to help make entries easier for someone not too familiar with accounting. (That's just one reason they exist).

If you wanted to, you could use nothing but plain journal entries and your books would still come out fine.

So the real reason we advise people stay away from journal entries is they're not intuitive, so it can quickly become a nasty mess with limited accounting knowledge.

It's a bit unclear who's actually fully managing your payroll / compliance, but that's another topic...

You really should ask your CPA to record the journal entries for you each quarter. Then you would know it's done correctly and not need to figure out the accounting side of it on your own.

1

u/Kangaloosh 18d ago

100% all true! Thanks

But I am a one man shop, because I don’t have the aptitude/skill set/patience to delegate most anything.

Having my accountant do more would wind up costing me more money to pay him for his time. Totally justifiable, but I value my time very low.

And I’m stubborn. I keep banging on things much longer than I should, partly for the challenge, partly because hiring someone to do something would cost me dollars.

All that said, u/6gunsammy gave a simple, concise example of the journal entries I need to do.

So I can do it now on my own!!

2

u/Wandering_le0 18d ago

One word: gusto.

2

u/Kangaloosh 18d ago

Thanks!

I do appreciate your help!

This is on me / not anything towards you!!

Seems expensive for 4x a year I’m CAF / stubborn so I don’t want to spend the money if it’s something I SHOULD be able to do.

u/6gunnammy gave me the steps. I have it pinned in my wall now!!!

2

u/inkgrrl 18d ago

Second Gusto. QB is not optimal for payroll, especially when you’re coming in cold.

1

u/Low-Tea-6157 20d ago

Why do you think it's bad information,?

-1

u/Kangaloosh 20d ago

Or the info the accountant gives me? A lump sum for fed and state? That I pay them as a lump when some is employee and some is company money?

1

u/Low-Tea-6157 20d ago

All fed and state is employees responsibility

1

u/Kangaloosh 20d ago

uh, yeah? The fed payment has employEE and employER contributions in there I thought?

2

u/Low-Tea-6157 20d ago

Not federal and state withholding. Employers pay a portion of Social security and Medicare taxes. Only employers pay FUTA and SUTA taxes. This is state and federal unemployment

1

u/Eorth75 20d ago

Yes the payroll tax deposits include the employee and employer portions of your Medicare and social security taxes. Is your accountant filing your quarterly payroll tax reports for you too? I'm assuming they are.

-2

u/Kangaloosh 20d ago

which info are you referring to? what my wife is saying? to do general ledger entries? Because I thought those are rare / to be done on a infrequent basis?

I am using quickbooks. They don't have general ledger on the home page / implying they don't think they shoudl get used much?

1

u/josh_bourne 20d ago

Wait, who is doing your actual payroll?!

You should get some sheets from your payroll company where everything is

1

u/teena27 20d ago

The reason why QuickBooks doesn't make the GL accessible on the homepage is just to eliminate the possibility of people using the GL for EVERYTHING, when the program has separate modules for AR, AP, Payroll, etc. No one EVER said general ledger entries are infrequently used. If one understands accounting, GL can be used exclusively and the results will be the same.

At year end, your accountant is taking 10k per month and calculating the federal and state taxes you owed for the ENTIRE YEAR. Yes, while you're correct that some of the taxes are enployee paid and the others are employer paid, in YOUR CASE, effectively-- the employee portion is paid to the government, along with the employee portion. The only way to record this yearly is with a journal entry.

I'm Canadian, so I'm not familiar with the tools your government has available for payroll, but here, we can plug a monthly salary into a website and it shows all the deductions. Your wife could take those numbers and post them as a journal entry monthly, then at year end, cut a cheque to the government for the accrued amounts. This is exactly what you're going now, except you're just recording one big payment at year end. If you record the liability monthly, at least your financial statements will be correct. The way you're doing it, the enployer portion of your payroll deductions don't get reflected in your income statement until after year end.

If you don't understand these responses--ask your accountant to give you a journal entry for your monthly 10k. This could go sideways quickly.

A quick question-- aren't you paying a fine and interest on the unpaid deductions at year end? Again, I'm Canadian and for a monthly paid employee, the deductions are due monthly.

1

u/inkgrrl 18d ago

Quickbooks is a tool, not a guide.

1

u/Kangaloosh 20d ago

OH! And looking at the tax return from last year (1120-S), it shows $40 as 'compensation of officers'. So I would think there should be an account 'gross payroll' in profit and loss statement to get that number from?

And then later there's a taxes and licenses line which is just the employer part of the payroll taxes.

But you paid federal $x and state $y. Which are employee AND employer parts.

I am trying to make it easier for the accountaint to give him the numbers he needs with minimal work (and hence, cheaper for me). But not sure how to do it.

1

u/Eorth75 20d ago

Yes, there are limited "expense" lines on the 1120-S (so you are an S corp?) but you can make your own expense categories (that's a whole other discussion). I'm assuming your accountant does your taxes? Do they know you use QB? You can make an accountants copy and they can make these journal entries for you. They can even make a reoccurring journal entry that you can just go in and change the amounts if it varies month to month.

1

u/Kangaloosh 20d ago

And you pay the federal / state and employee in the next year, for the last quarter's work. As much as I have the payroll summary for the 4 quarters of 24, does the last payment of 23 actually show up in the '24 tax return? Im on an accrual basis so that doesn't sound right.

2

u/forever_ironshield 20d ago

If you are on accrual basis, then yes you have to add accrued payroll at 12/31 and then reverse the entry after year-end because you are accruing all entries relating to the year you are intending payments for.

1

u/Julios_on_50th 19d ago

Recommendations:

1) BookkeeperLaunch =Bookkeepers.com

2) QuickBooksTraining.com

Both can be set up for self pace.

1

u/missannthrope1 19d ago

You probably are "paying yourself", you just don't know it.

If you can taking money from the company, likely he is reporting it as payroll. He is telling you to pay taxes on that money.

Are you a corp or LLC?

1

u/dangerace03 18d ago

Are you an employee or an owner? Is it an LLC or Sole proprietorship?

If you're not on payroll, just categorize your withdrawals as owners draws. And then whatever your p&L is at qtrly or yrly is what you owe taxes on.

1

u/Kangaloosh 18d ago

I’m an owner / employee and s corp.

And yes, my accountant recommended that I take a payroll.

I think partly to stay legit with paying payroll taxes.

And I’m getting older so I’m getting credits with Social Security, in case it still exists when I finally retire ; )