Payroll

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Liability Method

 

1.At the time the payroll is distributed or funded, create an accounts payable record for the net amount of the paycheck(s).  This will be a single entry for the whole payroll, if you are using an outside service or a separate payroll account.  If you are creating your own distribution checks, it will be necessary to create the AP record for each individual check distributed.
2.The GL Distribution should be as follows:
•+ Gross Payroll (Expense)        $1,000.00
•- Federal Tax Withheld (Liability)        -300.00
•- Employee FICA (Liability)        -62.00
•- Employee Medicare (Liability)        -14.50
•- State Income Tax (Liability)        -28.00
•- Local Tax (Liability)        -10.00
•- Any other deductions (Liability)        -10.00
•+ Employer Tax Expense (Expense)        92.50
•- Employer FICA (Liability)        -62.00
•-Employer Medicare (Liability)        -14.50
•-FUTA (Liability)        -8.00
•-SUTA (Liability)        -8.00
3.When distributions are made to taxing authorities, the AP record created should be distributed against the appropriate liability accounts.

 

There is a feature that allows you to create Distribution Templates, which would ensure that the correct accounts are selected each month.  Click on the following links to learn how to create and use these templates.

Creating Distribution Templates                Selecting Distribution Templates

 

 

Expense Method

 

This method requires less work.  Generally, the time frame between the accrual of a liability and the time that the AP record is created for the expense is quite short.  Many distributors elect to expense all of payroll and have their accountant suggest manual GL entries at the end of the tax year to create the liabilities.

 

1.At the time the payroll is distributed or funded, create an accounts payable record for the net amount of the paycheck(s).  This will be a single entry for the whole payroll, if you are using an outside service or a separate payroll account.  If you are creating your own distribution checks, it will be necessary to create the AP record for each individual check distributed.
2.The GL Distribution for this AP record should be to an expense account for Net Payroll.
3.When distributions are made to taxing authorities, the AP record created should be distributed against the appropriate expense accounts.

 

Generally, how you handle payroll posting depends on what your accountant needs to satisfy tax and creditor reporting.