USA Recording payroll using outsourced company

[Angela]

I took over from another bookkeeper, we use a payroll service and once a month we post a journal entry. Our accountant requested that we break it out and enter every individual check, which I did. I enter the payroll checks at net and I have separate line items for taxes, IRA and medical. Now the Accountant tells me that since I net the checks, I need to do an entry to gross-up" the payroll.

 

[Fidget]

The Accountant is correct. If an employee earns, say, $1000 per month gross then that's the cost to the company. If you're only showing the net amount after taxes etc, then your payroll will be understated.

 

[Bad Medicine]

Fidget, could you explain this a little more ? Does not having the gross amount affect one of the financial statements, is that why it would cause a problem ?

Edit, oh, okay, I see what you're saying ... you're saying not to do the calculation before recording the salary, I just read what you wrote incorrectly.

 

[Fidget]

Ok, let's say I employ you for $1000 per month. After deductions for tax etc, the actual amount you receive is $700 and the other $300 I've withheld from your $1000 on behalf of the tax man, and have to pay that over to him. So, you only get $700 paid to you, but the cost to me is still $1000. Therefore, I need to record the $1000 as your salary and not the $700 net amount that you were actually paid.

If I only record the $700 that you actually received, then my payroll records in respect of you would be understated.

 

[kirby]

Question for Angela
Are the payroll checks written using your company's checking account or the services checking account and you reimburse the service?

 

[BillLumbergh]

I took over from another bookkeeper, we use a payroll service and once a month we post a journal entry. Our accountant requested that we break it out and enter every individual check, which I did. I enter the payroll checks at net and I have separate line items for taxes, IRA and medical. Now the Accountant tells me that since I net the checks, I need to do an entry to gross-up" the payroll.

When I was doing Bookkeeping, I used a local company that handled all of the payroll for us. We simply reported to them the number of hours worked for each employee every week, and whether or not they were salaried or hourly. They then e-mailed me a file that I imported into Quickbooks which did the journal entries automatically.

Your Accountant is correct in that you need to break down each check individually. I'd also ask and see if the payroll service can send you a file to use with your Accounting program.

I forget exactly how the journal entries were broken down, but I do know that they recorded the gross amounts paid to employees as well as the actual company owed taxes and deductions.

I'd send your Accountant a copy or screenshot of your entries to have him make sure they are OK for the first few ones that you do.

Hope this helps.

 

[Donald Chemski]

Yeah, you enter gross because the gross amount is the total hit to payroll exp account. The other deductions will hit a certain payable account which is later to be paid the said vendor.

 

[QBslave]

Booking each individual is overkill. You only need to book total Gross Salaries, Deductions, and Net Pay for the entire payroll. The detail is in the payroll report if anybody needs it. Fire your accountant.