 Zero Accounting Software 2023. Enter payroll for second month. Get ready to become an Accountant Hero with Zero 2023. Here we are in our cusp. First, a word from our sponsor. Well, actually these are just items that we picked from the YouTube Shopping Affiliate Program, but that's actually good for you. Because these aren't things that we're just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Here we have a Western Digital WD Elements 20TB USB 3.0 Desktop External Hard Drive. We use as part of our backup system, noting that if you lower the number of terabytes of storage, the price will lower dramatically as well. When you're thinking about a backup system, you're usually thinking about an online system or an external hard drive system like this, or ideally some combination between the two, giving you some redundancy. 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We set up in a prior presentation, but if you don't have that, you can open the normal income statement, the comparative one, having both the current month, February and the prior month and the change between the two. Let's go to the tab to the left and the date looks good. So we're good to go there and then we'll go to the tab to the left again. We're going to be entering payroll for the second month of operations. Now, every time we mention the payroll, we just have to mention that there's multiple ways that you can be processing payroll and you really want to think that out first before you put it in place because payroll has human resources tied to it and tax obligations oftentimes. Whenever we get into tax obligations, we're talking about things that will be specific based on location. In the United States, we have specific situations based on the federal taxes, which blanket the whole state as well as some laws and regulations that could be related to state and local payroll tax that you have to basically deal with and obviously other countries have their own kind of tax systems and whatnot. Remembering that with taxes, there's nothing really new in terms of like governments have never dreamed up the way to take people's money in a new kind of way. It's all pretty much been done before taxes is an age old profession here. But which tax any particular place chooses to employ will of course differ based on the location. So you can get an idea of what is going on from a tax standpoint by looking at other people's taxes and then try to see, you know, what is being applied to your particular location. But of course, again, taxes will be specific towards the location. Let's take a look at a flow chart real quick over here. This is a desktop screenshot home page flow chart. We're just using it however to look at the flow of the forms. Remembering we're on the employee or payroll cycle. If we were in the, if we didn't have all this other stuff involved with employee pay, it would be just like paying a vendor. Money would be going out at the end. We'd shake hands. You did the work. Whoever is my employee does the work. I pay them as per our agreement. My word is my bond hand has been shook and we're good to go. But that's not how it is. You can't do it that way because the government won't let you. So you have to go down here and process this whole payroll kind of situation in the United States and from a bookkeeping standpoint. What that's going to mean is you've got to determine how, you know, how often are you going to pay people? Do you pay them weekly, bi-weekly, semi-monthly or monthly? Are they a contractor or an employee? That's going to be quite specific. If you're going to say that they're a contractor and not an employee, you need to make sure that you have, you have rationale according to the tax code and whatnot for that to be the case. And then if they're an employee, when you pay them periodically, you have to withhold money from them, at least on the federal side for federal taxes, federal income tax for their federal income tax, the employees social security and Medicare that you will have to withhold at a minimum and then you'll have the employer taxes, which also includes social security and Medicare. And then you might have state tax obligations and you could have benefits that you're providing as well, such as health care and 401k retirement plans and so on and so forth. So we're taking all that stuff out of their check before the check actually gets to the hand of the employee. We increase a liability account for those amounts because we're holding on to them and we have to pay them to the one that's shaking us down, right, to the government. And so then in the future, we'll actually pay that liability. In addition to that, we have reporting requirements to make sure that we're kind of double checking the forms in the United States. That's a quarterly reporting, typically form 941 and then yearly reportings for the form 940 for the federal unemployment tax, FUTA, and then the W-2s and W-3s that need to be issued as well. Okay, so all that could be done internally with gusto. So if you hit the dropdown and you want to turn on gusto in the system, you could do that. Then you would have a payroll tab and you can set up your gusto. Now we didn't set it up at the practice problem because we have to connect a bank account and whatnot, and so we couldn't really do that. But note that in practice, you also might want to have a third party payroll provider that just does payroll and hopefully deals with all that kind of stuff that needs to happen and possibly can help you with AR or human resources stuff in addition to make sure you're in compliance with any other stuff above and beyond just the bookkeeping kind of obligations. And if that were the case, then what you would need to pull into our zero system might be some summarized data. We don't need all the data. We need to get our financial statements correct because the external provider is providing all that other stuff in order to report the 941s, the 940s, the W-2s, and the W-3s and the paystubs that have to be showing year-to-date information as well as paycheck by paycheck information per employee and so on and so forth. Okay. So in our practice problem, we're going to basically imagine that we have our worksheet. We're just going to do our little calculation in Excel just to see kind of the withholding process that we're talking about with it and kind of imagine that this is a report that we would be given to us by an external provider that did payroll externally and we're going to take this information, put it into our financial statements in such a way so that we can get our financials correct for reporting purposes, possibly taxes at the end of the year and be able to reconcile our bank accounts. All right, so we did it last time for January. I'm just going to copy over January's payroll because it should be similar. I'm just holding down control and then left clicking and dragging so that copies the whole tab, double clicking on the tab and I'm going to put FEB and that's going to be our starting point. So I'm going to change the numbers a little bit. We still have the 4,000. So let's just look at this one by one. Adam is our first employee. We pay them salary, which I think was 55,000 divided by 12 would be if we pay them monthly 4,583.33 per month. We're going to say the FIT, I'm going to say 700 this time. Notice that the FIT is the federal income tax in the United States, not our corporate tax. We have to pay federal income tax as well, but this is the employee's federal income tax that we're estimating for this particular check. It's not a flat tax. I can't base it on a particular rate. It would have to be calculated with tables and that's one of the things that software or a third-party payroll professional can kind of help you with because you have to look up tables to figure it out. So you don't want to do it manually because it's kind of a pain. Social security is more of a flat tax so it's that number gross earnings times the rate 0.062 is the standard rate for the social security. Medicare is more of a flat tax, so easier to calculate. The gross pay times the 0.0145 is the general process and then I shouldn't need any adjustment so I'm not going to do an adjustment here and that gives us to our net pay. So let me just see if that, I think that's right. So our net pay is just going to be this minus this, minus this, minus this. What they earned minus what we withheld took from them so they never get that amount but we're taking it from them for their own good, for their own good and we're going to pay it on their behalf to the government because that's what they should do but they're too much of childish to be able to do that so we have to take their money for them and pay it on their behalf so they make sure that they do it right because the government doesn't trust them. So in any case, then we're going to say Social Security and Medicare for the employer taxes is going to be the same amount that we're going to have to match over and above and then we're going to do the same thing for Erika. We're going to pay Erika $2,400 and then FIT, we're just going to put $360,000 Social Security, we just made that number up but it would be coming from tables based on information from the W-4 Social Security is going to be that gross income times .062 which is usually more standard although there's still a cap to it and it can cause you problems if you were trying to do this manually all the way through and then Medicare .0145 is the rate and so there we have that so the net check is at the 185640 that they're actually going to receive gross pay minus the FIT Social Security and Medicare and then we're going to pay Social Security and Medicare as well over and above on the matching side if we think about them as we can think about all of our employees from a financial statement perspective as one employee and I could just sum this up right I get to the same earnings here the FIT is the sum of these two the Social Security is the sum of these which because this is more of a flat tax would be equal to this total times .062 which is nice you can kind of double check it same here this would be the same as this times .0145 because it's more of a flat tax right so we can see that that is the sum here and then the net check is the sum of these two which we can also kind of double check that as being this minus this minus this minus this right same thing and then we matched out the Social Security and the Medicare so when we enter this into our system let's pretend that this is being done by a third party provider and I don't need all this added detail notice like if I did this personally and I was responsible for actually paying and complying with all the human resources for the pay stub I would have to give the employee a pay stub that shows them the gross earnings minus the withholdings the net earnings on this pay check as well as a year to date which means I'd have to see the year to date numbers over here per employee I'd have to provide them that and I would also have to track this information in such a way that I can put the detailed information on the form 940s quarterly 941 quarterly 940 yearly and the W2s and the W3s I don't need to do all that stuff if it's being done by a third party provider but I do need to pull the information into my system in such a way that I can have my financial statements correct and do bank reconciliations now you could do the easy method of doing that you might just say hey look I'm just going to wait till everything clears the bank and use bank feeds to record it in my system and I'm just going to record everything to payroll expense whether it be payroll taxes or whether it be the earnings over here and you'll have timing differences if you do that but at the end of the day everything of course is going to go out of the checking account and you will be fine however you're going to need to make possibly a period end adjustment at the end of the year so that your financial statements are correct on whatever accounting basis typically on a cruel basis possibly or maybe a cash bit whatever as of the end of the year possibly for taxes or reporting purposes so then you might work with a CPA firm who can then take the reports that come from the client and or from your payroll provider the 941s the 940 the W2s and W3s and make a period end adjustment as of December 31st to make sure that everything is broken out properly payroll taxes versus payroll expense versus liabilities that haven't yet been paid right they can make an adjustment so if you do that notice that you can kind of scale up your system by having everybody specialize in what they do the payroll provider gives the human resources and all the information necessary for taxes tax reporting and the W2 stubs and whatnot to the employees and then we on the bookkeeping side are able to automate our system just recording everything on a cash based system and the accountant and tax preparer at the end of the year can make one annual periodic adjustment based on the employee information and our bookkeeping to get the financial statements correct for year end reporting or for tax preparation so that's one method you can use another method you can use is just to enter this periodically into our system which we could do with one big journal entry but we still have a reconciliation issue if we do that because it's going to clear the checking account so I'm going to do it with a couple check forms three journal entries basically two check forms and a journal entry so one for each employee so for Adam I'm just going to summarize everything as earnings there's the earnings and then the cash that was paid out was this there's the cash paid out the difference is the liabilities FIT Social Security Medicare which is a liability account same for Erika total earnings here the cash was paid out is this the difference is a liability account that we're going to have to pay out to the liability we can think of that in total which would be the sum of these two the sum of these and the sum of these which of course ties out to this being this number sum of these 159422 and then this is the net amount that's coming out of the checking account now I could just take one journal entry doing this into our financial statements and be correct but it'll be a little bit more difficult to do the bank reconciliation because I'll have two actual checks that are coming out of the system that might not be a problem because you might set up another payroll checking account that just has a payroll in it and as long as it's clearing out to zero then you'd be fine if you put the money in it and then clear it back out then you could use that but I'll put two entries in and then we've got another transaction for our liabilities which are the sum of Social Security Medicare for our side which we have not yet paid and therefore there's no cash affected with this transaction this is the actual payroll taxes notice that these up here are not payroll taxes from our perspective as the business they're payroll taxes they're taxes that have to be paid by the employee we're just the tax collector we're not actually paying the tax we're physically writing the check for the tax but that's because we withheld the money from the employees this is tax that we actually have to pay so that's why this is the amount that is included in payroll taxes okay so let's actually record this in our system here I'm just gonna make a couple normal checks for it because we're not processing payroll in the system I'm just gonna say it's gonna be a plus form spend money for them and it's coming out of the checking account and we're gonna say that we paid Adam Adam on 228 Feb 28 Feb 28 and we paid payroll to Adam for the the expense is 45833 so I'm gonna say let's just say 14583.33 14583.33 14583.33 K, POS oh this is gonna be payroll or wages I think they put it under wages yeah wages that's the expense account and let's put the amount here so let's say the amount is here there it is so this is gonna be 45833 45833 and then we're also gonna have the negative number of the liability which is 1050.62 negative 1050.62 and that's the payroll liability payroll let's say payroll tax payroll federal payroll liability let's do that so what's this gonna do the checking account is gonna go down by the 353.271 that's what Adam actually is gonna get the 353.271 the liability is gonna go up by the 1050.62 1050.62 which is the FIT Social Security Medicare Employee Portion 1050.62 and then the expense is gonna be the 45833 what they actually earned even though we took some of the money out of it so notice the expense kind of includes the payroll taxes in the wages and expense right it's not broken out into payroll taxes expense okay so let's save it and close it and see if that is indeed what happens let's go to the balance sheet and open up the checking account check out the checking and scroll on down and we're gonna say Adam Hamilton there it is there it is a yaw and then we're gonna go and say the other side is gonna go to the income statement for payroll the pay is rolling uh payroll wages there it is there for the full amount and then we withheld that's not what he actually got because we withheld the liabilities for the payroll liabilities in here let's dive into that and check it out payroll liabilities and there are those okay let's go back on over same thing for Erika so let's go to the first tab plus button we're gonna spend more money we're spending money on the employees but that's okay because they're totally helping us out Erika is a rockstar helper in our guitar business uh so well worth the money Erika Erika Smith and this is gonna be Feb 28 Feb 28 and we're gonna say 1 and she's got the gross pay of the 2400 to 4 wages and then the other side is gonna be withholdings which is the 543 60 so 543.60 payroll liability federal payroll liability what payroll federal I clicked on that didn't work so what's this gonna do the checking account is gonna go down by the 2943.60 that's what Erika is gonna actually get but that's not right cause this needs to be a negative number negative you're not getting that amount Erika sorry you're not, you're good that's not what we agreed on that's not what we agreed on 185.640 185.640 and then Erika's liabilities here are these three which is the 543.60 543.60 the 543.60 and the gross pay 2400 2400 2400 okay that's what's gonna happen so this and I go on over I get the green go ahead and go on over to the balance sheet and say checking account let's check out the checking K-PASO our key aorta let's say we've got Adam and Erika so these two should add up to the total now 69833 for those two checks and on the income statement if I update it if we go down we've got the 69833 and that should tie out to the total 69833 between the two of them 69833 for the two of them and then the liabilities if I go back to the balance sheet back to balance back to balance man we're gonna say in here scrolling down scrolling, rolling, scrolling keep on scrolling Adam and Erika so that's gonna be that if I summed those two up you would think that would sum up to the total of the liabilities here and here alright so then if I go back on up that's good that's movie B to the NBN but we're now gonna add our portion of the payroll taxes that we have to pay over and above we're gonna do this with a journal entry because we haven't yet paid it yet so we're just gonna do a journal entry back to the first tab to do so journal entries are found in the accounting drop down in the reports and then we just type in the journal report journal report and go on into the go to the journal go on over to the journal if we may new journal and we're gonna say this is gonna be payroll tax date 228 what's the date? 228 that's the date and then down here we're gonna say this is gonna go to payroll tax expense debit for 53422 534.22 and we're gonna credit payroll liability again federal payroll liability for the same amount if you don't know your debits and credits that's okay because if you get it wrong there's only two accounts affected you can see it went the wrong way and you can change it but basically the expense account's gonna go up like they always do with debits and then the liability account's also gonna go up with a credit so let's post it and check it out post it and take a peek over at the balance sheet balance sheet so now we're gonna say uh the liability account went up again for the federal payroll tax liability it went up for the amounts that are the employee portion we posted before and now with that journal entry that we just put in place which is the employee or portion and we've collected the employee portion from the employee by not giving them the money that they earned because we took it from them but for their own good because the government made us be their little collection the collection troll they forced us to be and then we're gonna and then we had our tax that we have to pay on top not on our income mind you but on the income of the employees which is kind of like weird how did who came up with that idea but whatever tab to the right and we're gonna scroll down and we can see that we had the payroll expenses here and I should have yeah that's it the payroll tax expense so that's that and then the wages down here so this is only the employee or portion of the tax important to note that many people confuse that most people confuse that they have no idea how these payroll accounts are broken out what is payroll taxes versus the wages what you know most people are baffled by it so if you can get a grasp of it you are could distinguish yourself as someone who knows at least something which is step up from the crowd usually so we're gonna say this is gonna go into let's go into the trial balance and see what we have in the trial balance so we'll go into typing in the trustee trial changing the date range back on over to December of 2023 and update so if your numbers tie out great if they were on in the prior presentation but they're off now the things we changed we changed the checking account we changed the payroll liability accounts federal payroll liability we changed the wages account down below and we changed the payroll tax account so you would think those would be the ones that might be off if there's something wrong if there is increase the date range see if it's a date issue drill down on these numbers get to the source document and make any changes you need to make