 In this presentation, we're going to enter payroll for the second month of operations. We are not actually processing payroll through the SAGE Accounting System, but rather thinking about the idea of some third-party processing payroll, such as a Paychex or an ADP, us getting the reports from them, having to enter that financial data into our system to reflect it on the financial statements as well as to be able to reconcile the bank accounts. Welcome to Engage with SAGE, 50 Cloud Accounting. Here we are in our Get Great Guitars file. We're going to be considering the payroll that we'll jump on down to the employee and payroll information. Now note, we're not going to be processing the payroll through this system within SAGE. However, we talked about the options to do that. If you want to look into that, it's typically going to be an add-on feature that you would want to discuss with SAGE as well as your accountant when setting up payroll. We're going to be thinking about a third-party such as an ADP or a Paychex entering this information and giving us the information from them that we need to then import into the system. As we do that, we have done so in January already. We processed the January payroll. We then paid the payroll liabilities. Now we're going to be processing February. We're going to be paying monthly. We're going to imagine that we're going to get a report such as this from our third-party such as an ADP or a Paychex. This is very simplified. I won't go through the calculations again, but just to get an idea of what's going to be taken, even if we have a third-party doing the payroll, it's still kind of confusing to a lot of people in terms of what are they doing versus what are we doing on our side and what do we need in our financial statements on our side of things. Remember, if we have someone else like an ADP or a Paychex, we would think one way to break out the duties would say, hey, look, we need you to process the payroll and give the detailed information to the employees, as well as process, of course, payroll taxes, the 941s, the 940s, and so on and so forth. For example, on a paycheck by paycheck basis, if we have our two employees, they're going to have to give a Paychex stub to Adam. The paycheck that comes out of our account is going to be this amount, the 3512.75, but also need to tell Adam, hey, this is how much you earned, 4583.33. We took from you federal income taxes, which includes social security, Medicare, and federal income tax, FIT, which means you only got paid this time, 3512, that's how much money you actually got. We need that on a check-by-check basis, as well as a year-to-date basis, that's what would be on the Paychex stub. That would be the same for each employee, Erica, same thing, earned this much, taken from her, social security, Medicare, federal income tax, because we're forced to do so so that we can then pay it to the government. That means that her actual net pay after the taxes that she owes is this, that we have to, the taxes she owes that we have to take from her is that. Then we have to pay on top of that the social security and Medicare to match that information, match the social security and Medicare. These are the payroll taxes for the employee ear, then. Now when we take this information, you can imagine this getting quite complex if we add, you know, state taxes to it, as well as benefits like a 401k plan and health care and all that kind of stuff, but similar kind of concept to it. We'd have to withhold whatever we got to withhold and then, and show that detail to the customer, and then the net check would come out of our account. Now when we put this into our system, we really just need the effect on the financial statements because we really want to say, hey, our financial statements are correct, they show the financial data, and then when someone needs more data, more detail, such as the Paychex stub or something like that, they can then go to the ADP or Paychex. That's kind of how you might consider it. Therefore, if we take this information, how can we then put that into our system? Typically, you would think of that as journal entries. So we can have the journal entry. We could think of the entire thing being put in our system as if they were one employee. For example, we can think of it as if we have the debit to, let me pick up the accounts over here. Let's see, we've got the same accounts. I'm going to just do it this way. Let's do it this way. I'm not going to re-enter the accounts. I'll just copy what we did last time so that we can do a quick review and then enter that into the system. So these are going to be the accounts that are be affected. And so we could think of it as a total accounts, right? I could say the total here was earned between the two employees, $5,383. And then we took from them that $1,241, which is Social Security Medicare federal income tax, adding up to that $1,241,82. And then we paid them $4,141,51. That works great. However, it's a little bit more difficult to reconcile that way possibly because we're going to have multiple paychecks that came out of our account that are going to come out to that $4,141. So that's OK, but you may want to break it out check by check if it's going to be difficult to reconcile. So we could also think of it, this is the paycheck for Adam, gross pay, what we took from Adam, net pay, and Erica, gross pay, what we took from Erica, net pay. And then on our side of the payroll taxes, we also have to pay Social Security and Medicare. We don't pay those at the point in time that we process the payroll, but we'll have to pay them in the future. Therefore, we will record the payroll tax expense for our portion of Social Security and Medicare and the payroll tax liability. We don't have to worry about actual checks here because there's no effect on the checking account. Therefore, I'm just going to put it in one lump sum rather than break it out by employee by employee. So let's enter this into the system. We're basically going to enter each of these checks then. I'm going to enter a separate one for Adam, then Erica, which will be basically this journal entry, and then this journal entry, and then we'll enter a journal entry for the payroll taxes. Let's do that now. We're going to go back to our accounting system to do that. So we're going to be in Sage. We're going to go to the tasks dropdowns, the tasks, and then we're going to go to the... Actually, I'm not going to go to the tasks. I'm going to go to the vendor and purchases first. We'll go to the tasks later. I just wanted to say the tasks. So then we're going to go to the right checks. Let's say we need a new check. And the new check now is going to go to Adam. So we're going to say Adam. And this is all fine. And I'm going to put a number for the purposes of our practice problem. The 28th is fine. I'm going to say the cash is the other side. It's going to wages. Now the trick is that we need to split this. So the cash that's going to be coming out is going to be for the net check. So Adam's going to get 3512171. 351271. It's going to be 351271. But we're going to have to split the accounts that are affected down here. So I'm going to check the split that's going to be affected down here. Wages, because Adam earned 4583.33, the gross pay. So he earned 4583.33. But we can't give him that because the government won't let us. What the government says is you've got to take from Adam the amount of the liability. So the payroll taxes. So we're like, all right. And so we're going to say that we need to take the federal payroll taxes away from Adam. So that is that in 107062. That should be correct because that's what we need to be in balance. So that's going to be Social Security, Medicare, and tax. 107062. So there we have that. That looks good. So I'm going to say, let's say Erika. So we'll say Erika. And we're going to say that there's a check number. We'll set up the same date. And we'll be like, OK, Erika earned gross pay of the $800. So we're going to say $800. And then we're going to go to our splits down here for the other accounts affected. And now she got the wages that were earned. I'm sorry, the gross pay was $800. She's only going to get $628.80. $628.80. So let me fix this. She's only going to get the check of the $628.80. Erika's like, I've got to pay the rent. And we're like, well, you know, the government, the government, then the gross pay is going to be $800. And then we're going to say the withholdings then are going to be the income tax withholdings, the liability here. And that's going to be the taxes, federal payroll taxes payable. And that's going to be the $171.20. And that should be correct because that's what we need to be in balance. That's the Social Security Medicare and FIT 171.20. So there is that 171.20. So we're going to say OK. And then that is that. So same thing is going to happen. We're going to decrease the checking account by that $628.80. And then the expense for the $800.00 and then the liability for the difference. So I'm going to go ahead and say save on that. Let's check this out. And then we'll do the other journal entry that we need to do for our portion of the employer payroll taxes. So let's select the dropdown up top. We're going to go on down to the financial statements. Let's open up the old balance sheet. So we'll open up the old balance sheet here for the month of February, February. And we're going to say that the checking account, going into the checking account, there are, there should be, two checks that we wrote here for Adam and Erica. Here they are. Erica and Adam as of the 28th. All right. And if we double click on it, either one of those, of course, that'll take us to the check information. So I'm going to close this back out, close this back out. The other side, then the main portion of the other side, going to the income statement. So let's open up the old income statement. So let's open up this one, the income statement. We want the month of February. I don't want to see the zeros though. So I'm going to get rid of these two little tick marks. So I don't have to see the zeros and then say, OK. So on the income statement under wages, so if we go to the wages expense, double click on the wages, we've got the 4583 and the 800, the gross amounts. So these are the gross amounts. The difference being the taxes that are withheld. So if I close this back out and then go on back over to the balance sheet. So we're going to go back on over to the balance sheet. And we're going to go down to the federal payroll taxes payable. Double click on the federal payroll taxes payable. And that's going to be the amount that we took from Adam. So the Fed made its take from Adam, the 1070 and the 17120 they made its take from Erica, that being for just the federal taxes. That's going to be the federal income tax to Social Security and the Medicare. Now let's close this back out and let's enter our portion now. That's going to be what we have to pay over and above for the payroll taxes, which is going to be matching the Social Security and Medicare. So that's going to be the 41182. We could do this with a journal entry because we're not going to have any cash affected. So let's go back on over and say, OK, now let's go and enter what we're going to owe. And we're going to say, now we can go to the tasks dropdown. So tasks, and we're going to go down to the general journal. And let's make this large. And we're going to say that this is going to be into the payroll taxes. So selecting the dropdown, we're going to go on down to the payroll taxes down below. So we're going to down here somewhere in the payroll taxes. I know there is one. I'm pretty sure here that there's a payroll tax down here. Found it. It's going to be the 6100. So payroll tax expense. And then we're going to say that's going to be for the, I believe it was four. Let's do a little check it out. It's going to be for the 41182. OK, 41182. So we're going to say 41182. And then the other side is going to go to that liability account, the payroll tax liability. So we haven't yet paid it yet. So it's going to be to the federal payroll taxes payable. And that's going to be for the same amount of the 41182. So let's go ahead and save that. So we'll save that. Close this back out again. Let's check it out again on the financial statements. So if we go on over to the financial statements balance sheet, then we see that the federal taxes payable, if we go into it, has now increased. So now we have, of course, the amount that they made us take from Adam, the amount that we made us take from Erica, which theoretically comes out of their paycheck, and then the amount that we had to pay over and above, based on their wages for the employer portion of Social Security and Medicare. So then if we close this back out and we go back to the income statements, let's go back to the income statements, then we have the new account here called the payroll taxes expense. Now, remember that the taxes, although we took taxes from the employees, we don't record it as breaking out separately on the payroll taxes. It's included in the wages. Why? Because in theory, they're not our payroll taxes. They're their payroll taxes. They're the employee payroll taxes. So in theory, we're paying them $5,383, and then we took from them for them to pay on their behalf the payroll taxes that we gave to the government. Whereas this payroll taxes is over and above the gross pay that we paid over and above that. So again, most people don't really understand the payroll tax expense on the income statement is just really the employee or portion. The payroll taxes paid by the employees are included in the gross pay of basically the wages expense. So that's gonna be it for now. Let's get out of here.