 QuickBooks Online 2024. Inter payroll for second month of operations. Get ready and some coffee because QuickBooks Online is even quicker to the trigger than Quickdraw McGraw. First a word from our sponsor. Yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but but that's okay whatever because our merchandise is is better than their stupid stuff anyways. Like our trust me I'm an accountant product line. Yeah it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our get great guitars 2024 QuickBooks Online sample company file we set up in a prior presentation opening up the major financial statement reports like we do every time the reports on the left in the favorites right click in the balance sheet to open a link in a new tab right click in the profit and loss to open a link in a new tab right click in the trial balance to open a link in a new tab let's tab to the right close the hamburger and then we'll change the range 010124 tab 022824 tab we're going to select the drop down to see it month by month run it and then tab to the right hamburger needs some closing changing the ranging 010124 tab 022824 tab I should be putting 29 by the way there's 29 days apparently in 2024 but 28 will still work we're going to run it here and then do one more time closing up the hamburger and change the range 010124 tab 022924 there's 29 days and then we're going to say months and run it boom that's the setup process let's go back to the balance sheet and think about what we're doing now which is payroll for the second month of operations you will recall in the first month of operations we went through the payroll setup process and now we should be basically running smoothly and we can just process the second month of payroll although payroll is a little bit tricky when trying to work in a practice problem because usually you have to run payroll real time because that's how QuickBooks is set up let's give a quick recap with the payroll process in a flow chart this is the desktop flow chart but we're just using it for the online purposes just to look at the flow of the forms we're in the payroll down below note that you could enter time but we talked about the process of entering time often being used not for payroll but to then create invoices to build a client in a job cost type system but if you have hourly employees you might also need that to process the payroll we are now on this step which means we're going to be paying the employees and we often would do that you can choose when to do that usually weekly semi-weekly by monthly or monthly we chose monthly so now we're on the second month and we're going to be processing payroll for the second month of operations this will be generating the paychecks or electronic transfers and doing the withholdings which includes federal income tax social security medicare for the employee and social security medicare and futa federal unemployment tax act for the employer taxes and then we have to to pay the liabilities that we took from the employees and our own payroll liabilities and then we also have to process informational forms to prove that we've done what we're supposed to do to the government that includes the form 941 quarterly filings 940 end of year filings w2s and w3s at the end of the year let's go back on over and go to the first tab here and you'll see that if you have payroll on then you're going to have payroll on the left hand side recalling that payroll is one of those things you want to think about how you're going to do it pretty in depth before you just dive into payroll it's not one of those things you want to tinker with it's one of the things you want to get right the first time typically because fixing it is kind of problematic it's like trying to put a door in a doorway and you cut the door too short that's not the way it's gonna have to glue the door back together or something that's not the way you want to do it so and so note that you can also do payroll outside with an external payroll provider possibly in which case you wouldn't have to be processing all the payroll internally possibly being able to then run your quick book system more on a cashed based system even while the human resources and payroll are done by a third party as long as you can also work with a accountant and bookkeeper that can do adjusting entries as needed for whatever is needed as the end of the year comes such as for taxes and possibly external reporting so just if you if you do payroll in quickbooks you're still gonna have to pay for it because you need the payroll processing you could try to do it by hand but I don't recommend it even if you only have a few employees because it's getting quite tedious and the employees frankly are the most likely people to sue you or something if something goes wrong so you don't really want to mess up the payroll you want to pay your taxes and whatnot for payroll even more so than your income taxes because if you don't the government can can argue that you not only didn't pay your taxes but you stole the money from your employees because you were forced to take the money from the employees in the form of withholdings and then didn't pay their taxes so in any case we're in the payroll on the left we've set it up already we've got the overview tab on the first tab and then we could go to the employees tab on the second tab here's our two employees let's just go ahead and run the payroll run it and we'll go through the process so last time we did it for January I'm looking for February so I'm going to go for the period of February 1st to the 29th noting that the payroll period could possibly differ from the date of the check meaning we don't always have to have the period end on the same day that the check happens although that's more likely possibly to be the case these days with electronic transfers but you might want some kind of cushion between the two so you can process the payroll end get the information necessary such as time sheets and then actually do the payroll possibly a couple days later but in case it's going to be the same time edited if we needed to do that we can add the employees within here here's our summary of information normally if everybody was on a salary basis and or if the time was pulling in automatically from the time entries for hourly employees everything should be the way it should be set up properly here and you can just roll forward with it but we're going to go into here so that we can see what is actually happening as well as do adjustments for our practice problem purposes so let's go into Adam Hamilton and check out what we have so this is this is his information let's x out of this that's not where i wanted to go i want to go into the edit paycheck drop down three dots edit paycheck paycheck okay so there we have it so now we're going to say he's a salaried employee so the salary should be good if we pull out the trustee calculator that should be calculating properly i think we said it was 55 thousand a year 55 divided by 12 that's that month much per month notice we also have the year to date numbers and then we're looking at the mandatory withholdings noting that this should be populating automatically now the social security and medicare are basically flat taxes they won't even let you change those right 4583.33 times 0.062 social security and then the 4583.33 times 0.0145 there's the medicare the federal income tax is pulling in from the information we got from the w4 possibly filled out by the employee if we were able to email that information to them this is a more complicated calculation because it's based on the the individual income tax and and that's going to be a mess which we cannot get exact and so uh so so that is what it is now i'm going to just make up this number here to tie into our worksheet so i'm going to make it be 683.97 i want this to tie into what is on our our practice problem for the bank reconciliations the in california taxes now california has an income tax but i want to make it a generic problem and not deal with state information having this basically just be the federal stuff which is in essence universal for all states in the united states noting if you're outside of the united states then of course you're going to have different payroll tax laws because taxes are the thing that messes up the bookkeeping to be universal the double entry accounting system is the same laws of course change tax law having the biggest impact on the bookkeeping taxes themselves are all you know we know the different kinds of taxes the only question is what's the kind of tax that's being applied in your area in the united states the taxes will differ from state to state so some states like california like any any there's no tax they don't like right so we can we can come up with any tax like yeah well yeah we throw that one in there but other states they might prefer an income stack tax or payroll tax or sales tax okay so i can't get rid of the state disability insurance they're going to force me to put that one in there so we will deal with that and then we've got the employee or taxes so once again i was trying not to deal with the federal unemployment tax but they're going to force us to deal with the federal unemployment tax here we've got the social security which matches the employee portion this is our tax that we're going to have to pay as the employer on the employee's wages the ett and once again we've got the california sui employee tax which is something i didn't want to have to deal with but they're going to force us to deal with that as well in our practice problem so what i'm going to do here is i'm going to change the federal income tax to 633.55 to compensate for that $50.42 so i lowered it by $50.42 so i come up to the same total of the withholdings so what do we have here this is this is going to be the income for the current pay period these are the year-to-date numbers this is what we're taking out of the employee's paycheck because they the government made us do it these are basically the mandatory withholdings the government would say it's for their own good it's for their own good it's like whatever for for their own good you you go and you take their money don't make me do it for crying out loud if we still if we subtract the two then we get the paycheck that would actually be going out to them and the government's like they're too stupid to pay their own taxes we you have to do it for them it's like whatever i hire smart people i don't need they can deal with their own thing deal with their own taxes you jerk anyway government there's the year-to-date numbers so if we take this number minus the the total that's going to be what has been received on a year-to-date basis now in practice we might have other types of withholdings which would be voluntary types of withholdings like like obviously health insurance and 401k plans and whatnot but we have a whole another course or section that dives deeper into payroll if you want to dive into some more weeds that are are there and then on the employer side this is going to be our portion of the taxes which is simply going to increase the liability for what we owe and this will be the actual payroll taxes so when you think about payroll taxes note that these are the payroll taxes to us the employer these up here are taxes that we have to pay they are payroll taxes however to the employee for us they're just the wages to the employee as the as the employer these are just the employees wages that i have to then give to people based on the employees what their debt is right so i have to give it to the government on behalf of the employees but it's really just part of the employees wages that i'm being forced to distribute on behalf of the employees whereas this part is our payroll taxes because we have to pay taxes over and above what the employees earned all right let's go ahead and save that and then we'll do another one let's go into Erica here and check hers out so we'll edit her paycheck and we're going to say that she had i want to i want to make the hours and so we're going to make this to be 150 on the hours this time and so that's going to come out to 2400 hourly employee 2400 total and then we're going to say that the federal income tax i'm going to say i'm going to change the federal income tax to 360 that would be based on her w4 information i'm going to remove the state taxes that i can and then i'm actually going to reduce that 360 minus the 2640 that i can't get rid of on the state side which brings me to 333.6 i'm doing this because i wanted to tie out to the to my practice problem uh where we have bank reconciliations at a future point so noting once again the social security and medicare those they won't even let you change those because those are basically flat taxes they're not perfectly flat taxes by the way if you think about a theory and theory for tax theory people you know you know a lot of people would argue that a flat tax might be a better way to go than more complex type of tax systems but note that even the social security isn't exactly flat because because there's a cap on it and that's going to cause a problem if they hit the cap and you miss it because you have to look at this year to date number to see where that cap happens and the medicare might actually have a place where it starts to increase in basis and and again why would there be a cap on social security because that would look funny that means that if you make more money you stop paying taxes at some point is not a benefit to the rich and you could say well the the thing with social security is that it kind of acts like we kind of think of social security as a retirement plan these days instead of a safety net program which is one reason the tax is so high right now so if it's a if it's a retirement plan that we're all forced to pay into instead of like saving for our own retirement then then you would think the more money you put into it the the more money you would get back from it when you get the benefits at retirement but of course that's not exactly the case the benefits go down as you put more money into it because it's kind of part welfare program and part of a retirement program and so this is part of the issue we don't really know what social security is these days we're confused as to as to whether it's a retirement program or not so anyways if this is 2400 times 0.062 is going to be for 14880 and then this one's going to be 2400 times 0.0145 and that's going to be 3480 and then this is our taxes that we're paying over and above so this is us taking Erika's money because the government makes us in mandatory withholdings and then paying it on Erika's behalf this is us paying over and above what Erika earned for our payroll taxes so that's going to be that so let's go ahead and save it and I think that is what we need to do so I'm hoping that everything is good to go okay so boom boom boom so let's go ahead and preview it is it good we're gonna say here's the total payroll gross pay gives us our little worksheet boom looks good let's go ahead and it's we have we have a submit payroll save for later I'm gonna do it I'm gonna do it cross your fingers let's run it and then we'll say that I'm not rating it right now so I think the check numbers are 10.022 and 10.023 let's say and so and then print pay stubs so if we can check that out and so here are the pay stubs so so so this is required to provide to the employee even if you don't give them a physical check why because you have to tell them what they actually earned in total and their total earnings and what was withheld from them so here's the current earnings here's what was taken out of their earnings for california income tax medicare social security california state disability and the federal income tax to get to their net check so we don't we do not have to give them our portion so we're not including on their paycheck what we also paid on their behalf our portion of social security medicare and the federal unemployment tax for example and we also have to give it on a year to date basis so you can see this starts to get somewhat tedious because of we have to provide kind of a lot of detailed information not just the current paycheck but the year to date information the year to date information becoming important because of things like the caps such as the cap on social security and the possible added payment for medicare there's a cap on federal unemployment tax and whatnot so it actually gets quite messy even though every one little component of it is fairly simple you put them all together and it gets messy so download payroll reports so if we do that we get our total cost this is the employer reports tax payments tax and wage summary tax liability total pay employee e reports payroll summary payroll summary by employee now if you were doing payroll and you wanted to provide these to a client as payroll is provide as done this is the type of report that you might be receiving for example if you had a third party person doing the payroll and then providing you with with the reports but we won't generate these now we could export them to excel which is pretty neat let's actually do that let's let's do all of these and i'll show you i'll i'll do these employee detail let's just do all of them and export it to excel and that's pretty neat because then you get all the payroll reports basically in one place but you also have a whole lot of payroll reports internally within quickbooks as well if you like the excel format of the reports you can of course use the cute pdf printer to then export the reports to export the reports so if i then enable the editing here so we've got the deductions and contributions the payroll details so this gives us the total and this gives it by adam and erica so this is quite common and useful to understand that you can see payroll as employee by employee and break out the information that way but you can also kind of see payroll as though you have one big employee that's a conglomerate of all the other employees and you get and you can think of the journal entry in that format so total hours this is the gross pay and then this is the regular pay and so this is the pre-tax deductions the adjusted gross and then other pay employee employees so we finally get down to the the pay here the total pay and then employee taxes and deductions so this is what was taken out and the employee taxes total include the federal income tax social security medicare income california income tax this is what was taken out the sums up to 157 819 this number here employee after tax deductions net pay so here's the net pay which is going to be the total pay minus and this is for both of them each employee and then both of them minus what was deducted and the employer taxes which include the futa the social security medicare this is a pretty good report i like the format of this one because it not only gives you what you see in a pay stub the employee stuff but also the employer tax is something often missing in in some reports that are just giving you information supporting the employee side of things you've got the payroll summary this is kind of similar information that looks like but a different register format so now you've got hamilton and erica it's in a horizontal format now where you have the gross pay so here's uh the the gross pay for uh february and so we've got the gross pay for that period the net pay the employee or taxes and the total payroll taxes pay method all right pretty summarized report this is uh tax payments we don't have any tax payments as of yet we're gonna we've just withheld them we haven't paid them yet and this is the uh paycheck wages subtotal and then this is the employer uh the employer taxes so this is the employer taxes that were taken out so it's kind of a summary report this is in a payroll tax and wage so here's the total wages again uh and it doesn't give it by employee this time but rather gives us simply the uh total wages for the different types of taxes for california p it california california federal income taxes so that gives us the total wages the taxable wages the tax amount and the tax percent now this becomes important because when you think about your w2 the total wage box uh might be different there's three total wage boxes if you think about your w2 one for the type for each type of tax basically because you have you have your wages for your federal income tax which might be different than your social security wages because you might have hit the cap which could be different for like medicare wages and so on so then then this is going to be your tax liabilities so this is what we owe uh as of now broken out by the different things that we owe these are the forms that we're going to be paying with and the total pay so here's just a summary of the total pay and the employee detail so you can see there's a lot of detailed information in here whereas note that if payroll wasn't so complex if we didn't have all these laws related to payroll what would payroll look like it would look like basically plus button uh enter an expense form right we we would just shake hands and say i'm just going to pay you just like any other vendor as of the end of the week we'd wait till it come through the bank feeds and we'll just call it wages expense that's what payroll should be if it wasn't for all the regulations but now it's complicated to the point where you have to have a whole separate added pay to deal with the complications of payroll and possibly hire a whole extra payroll processor to deal with the payroll so it's pretty interesting area any case so now let's go to our balance sheet and run it and we can see that in here what has happened thus far we've got then the check we should have these two checks in here let's go into the checking account and to do payroll checks we should have the checks i think i have to bring it up to the 29th hold on a second bring it up a day there's 29 days in february 2024 looking forward to that extra day so here's our payroll checks boom boom if we drill down on them it's not going to take us to that payroll data input but rather actually they won't even let us drill down on the check because they're payroll checks okay let's go back and the other side's going to go to the expense generally we're going to run it do i have i need to bring it up a day to the 29 29 let's go down and say that we have then the wages so here's the wages going into that and we have our two paychecks that have been generated they won't let me drill down to the source document that's for the for the gross pay and the difference between the the wages and what we saw on the check is of course what we took from them in withholdings back to the balance sheet and we took that from them and put it in here into our liability accounts such as the federal taxes and so on 941 that social security medicare and and social security medicare and federal income tax so we took that money from them and we owe it to the government you can see why you get in trouble if you if you don't pay these taxes because now the government says you not only didn't pay your taxes you stole that money from the employees and didn't pay the taxes on their behalf like you're supposed to and it's like well i have cash flow problems and i can't pay the taxes but you made me withhold the taxes i didn't want to withhold the right and you get into a messy situation so you don't want to do that with payroll taxes you want to pay the payroll taxes and not get in trouble with with those because then you get all then everything gets messy so then also we have taxes for our side of the taxes so in here and the other side of that is over here on uh the payroll taxes so payroll taxes here these are just our portion of the taxes our portion of social security medicare and the federal unemployment tax futa now before we wrap this up i'm going to make one more adjustment to deal with that federal unemployment tax and the sdi taxes they made us record so that we can tie into our worksheet so that in future sections everything will work out when we get to the bank reconciliations for example in a future course or section so i'm going to make these adjustments into a separate account as we did when we ran the first month payroll for the payroll liability adjustment here and then we'll also see it over here on uh the payroll tax adjustment so i'm just going to do this with a journal entry so i'm going to go back on over here we could do it by going into the actual register because those are uh liability they're balance sheet accounts so i'm going to go into the do-do-do where am i going to the transactions and then in the chart of accounts i can pick either one of those uh account or no i have to pick the liability account so the payroll adjustment liability account is what i am looking for so here we have it it has a register to it so let's go into the register and enter the journal entry this way i'm going to select the drop down and make a journal entry and i'm going to make it as of 022924 same date as the payroll this is uh adj for taxes let's say taxes adjustment i don't want to make it adj because that's going to be our we'll talk about that later this is a decrease this is going to be for 228.66 and the other side is going to go to the payroll payroll tax tax adjustment to this adjustment account here so it's going to be going there and let's go ahead and save it so i'll save that what does that do if i go into my balance sheet and run the report then we have in this adjustment account this adjustment if i go into that we can see then that we have a journal entry if i go into the journal entry it's going to now show in debit and credit format as opposed to the register i'll copy the the description and put it on both sides and then i'll save and close that and go back and the other side is on the income statement running it and i made an adjustment in a separate sub account here for the payroll taxes in that one as well with a journal entry so there is that one now note that if you're tying out remember that these reports over here basically are the reports that are going to be used to populate the 941s the 940 given to the government and the w2s and the w3s given to employees and the government so these what you want then is these forms to tie out to what you're also going to give to the government which is going to be your income taxes for your actual business so note that at at the end of the year what you'll typically want to do is take something like this summary report and make sure that the totals in the wages think of it as one journal entry the total for the wages should tie out to basically what you have in your wages account on your income statement and then you should be able to tie out to what is currently the liabilities that are outstanding on your balance sheet noting that if you did this on a cashed-based system and had someone else processing the payroll then you could just wait till everything clears the bank record it as one account payroll expense and then possibly use this report which would then be provided not by QuickBooks but by the external payroll provider to then make the adjustments to your to your books as of the end of the year for income tax reporting uh or external reporting purposes right so if you had someone else do the payroll in other words they would give you a report like this which you can enter possibly as though they were one employee doing one journal entry per pay period or possibly simply staying on a cashed-based system waiting till the end of the year to make that adjustment when you need it for tax time or possibly external reporting but to do that you need a team of people that know what they're doing yourself as the bookkeeper possibly a CPA firm that can make this periodic adjustment and a payroll provider that can handle all of the human resources and payroll and the pay stubs and all that kind of uh stuff but just note that you want these things to tie out because if they don't tie out then you're giving something to the government that doesn't match right if you give something to the government where your your financial statements reported on at least your tax return don't match what you're giving to the government in terms of the quarterly payroll reports 941s and the yearly W3 then you know that's inviting possibly an audit or something like that they might be able to just process that without human too much human interference and figure out that something doesn't seem right so this is where we stand now on the balance sheet so here's where we are on the balance sheet here is the income statement let's run that one and then we'll take a look at the trial balance remember in the trial balance is the balance sheet on top of the income statement if your numbers tie out to these numbers great if not try changing the date see if it's a date range issue if it's a paycheck issue then you'll actually have to void the paycheck and process it again right we've got the assets liabilities equity income expense so the assets are starting from the checking account and going down to the machinery and equipment that's what the company has the liabilities are people third party that have claimed to the value of those assets starting at accounts payable going down through the payroll liabilities to unearned revenue most of them being credit balances and then we have our claim to the assets in the form of the balance sheet accounts of owners investment similar to the common stock if it were a corporation and owner's equity similar to retained earnings if a corporation and then the income statement starting with the income as credits minus the expenses as debits which would give us net income that would roll into the owner's equity or retained earnings if it was a corporation and QuickBooks does that automatically in a year by year basis so if I go from one oh one oh one two five two oh one oh one two five and run it you can see that it's basically rolled in here to owner's equity the equivalent of retained earnings for a sole proprietor