 QuickBooks Online 2023 Payroll Transactions Using Bank Feeds Get ready to start moving on up with QuickBooks Online 2023 Here we are in our bank feeds practice file. We started up in a prior presentation using the 30-day free trial. We also have open the free QuickBooks Online sample company. If you want the two open at the same time we suggest using Incognito or another browser. You can open Incognito if using Google Chrome by selecting the three dots in the browser. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again click the link below for a free month membership to our website and all the content on it. Incognito window typing into the search engine QuickBooks Online Test Drive We're using the sample company to compare the accounting view the one the bank feeds practice file is in and the business view the one the sample company is in. You can toggle between the two views by going to the cog up top switch the view down below and we're going to open a few tabs now and put some reports in them like we do every time. Right click in the tab duplicating it right click in the duplicated tab to duplicate it again back to the tab to the middle reports on the left opening the balance sheet. If you're in the business view by the way the reports are in the business overview and then the reports. Then we're going to go to the tab to the right down to the reports income statement or profit and loss close the hamburger change the range from a 101 222 tab 1231 222 tab run it to refresh it and then I'm going to open the bank feeds tab to the left the bank feeds are under the banking and then banking up top close in the hamburger if you were in the sample company by the way the bank feeds are in the bookkeeping area transactions up top bank transactions. Okay that's the set up for today. We're in the sample company by the way the bank feeds are in the bookkeeping area transactions up top bank transactions. Okay that's the set of process we do every time. Now we want to think about how the payroll would fit into the bank feeds. So we have our bank feed data which of course is recording the information that's clearing the bank. There's a couple options that we have for the pay payroll the two primary options you have are to run the payroll through QuickBooks or to pay a third party provider to help you to run the payroll. Either way it will typically cost more to be processing the payroll. You're going to have to pay up or pay more to process the payroll within QuickBooks. There's different tiers. I won't go into them in a lot of detail now but you can research whether or not you want to be buying the payroll within QuickBooks or if you obviously pay a third party provider a payroll specialist then you're going to be paying them to help you to be processing the payroll as well. Now there are pros and cons of using either of the two methods. I would recommend when thinking about how you're going to set up the bookkeeping for your business or if you have a bookkeeping business to think about how you're going to set it up for some time because it's a complicated component and you might want to ask like a CPA that you're not planning on paying for payroll or an accountant that you're not planning on paying for payroll to give you advice and pay them simply for the advice about payroll because then you might get some advice that's not tied to actually selling you the payroll and then once you have that advice then go talk to the payroll professionals either at a third party payroll provider like a paychecks or an ADP or something like that or to QuickBooks themselves to be purchasing the payroll. Okay let's think about the pros and cons and how the bank feeds fit into the payroll process. So just in terms of what happens if you're dealing with payroll what's going to happen well you're going to have to set up the payroll you're going to have to think about when you're going to be paying people you have some leeway to set up your own system for that you're going to be weekly, bi-weekly, semi-monthly or monthly on the payroll then you'll be processing the payroll which means you're going to be generating in essence payroll checks or electronic transfers decreases to the checking account periodically, monthly, weekly, semi-monthly, bi-weekly and as you process the payroll checks you're going to be having to do the withholdings you're going to have to basically deal with the fact that the federal government wants you to withhold payroll taxes you might have state governments that want to withhold payroll taxes and you might also have other deductions 401ks and whatnot that you have to deal with the withholdings on that's what makes or one of the things at least that makes payroll complicated and then of course you're going to have to pay the payroll liabilities that you withheld and then you have reporting requirements like the 941s quarterly usually the 940 at the end of the year the W2s and the W3s now note that if we didn't have all this other stuff if we didn't have the withholdings if we didn't have this kind of our benefit packages tied in healthcare and stuff that could be involved with the payroll if they're part of the benefits then payroll would just be like part of the vendor cycle we would just say okay we shook hands you said you're going to do this work for me you worked so many hours I'm going to pay you what we agreed to pay you I'm going to write you a check or just give you an electronic transfer checking account goes down the other side goes to payroll expense no problem easy we can use the bank fees to do it and record it even that would be easy to do however we can't do that because we have all these other responsibilities we have to deal with holdings and we have to tie possibly some factor of it into human resources kind of situation to make sure that we're properly categorizing someone as an employee versus a contractor that we're giving the employee the information that is required that we're in compliance with laws such as minimum wage laws and other kind of laws with regards to what we're going to pay both on the state level and on the federal level all of that stuff gets quite complex and like I say is kind of tied in to some degree with human resources which has an accounting component to it but also possibly reporting components to it as well so if you do that internally you pay more to do that within QuickBooks and QuickBooks helps you to generate the paychecks do the withholdings process the reports and give the information to the employees that are needed but clearly doing that means that there's going to be a whole lot more detail in your QuickBooks file you're going to be have to track your payroll on a payment by payment method you're going to have to have enough detail in your reports to give a pay stub to each employee showing them individually how much they have earned and what the withholdings on period by period and on a year to date basis and you're going to need the information necessary to populate and create hopefully through QuickBooks the quarterly reports 941s and the year in reports the W2s the W3s and the 940s so you know that's a lot just to manage even if you're getting kind of help out within the system where then do the bank feeds fit in well clearly you can't wait till the checks that you're paying to the employees clear the bank if you're processing payroll through the system because you're going to have to use this widget in essence to write the checks because that's the thing that's going to allow you to populate the proper withholdings and create the pay stubs and so on and so forth so in that case if you're doing payroll within QuickBooks you're doing a full service bookkeeping system with regards to the banking transactions as opposed to what we saw up here with the other like expenses you might have the telephone expense for example you can wait till that clears the bank if it's an electronic transfer and just record it when it comes through to the bank feeds you can't do that with payroll if you're processing payroll through QuickBooks because you need to use the QuickBooks widget in order to generate the check and then it's going to clear the bank then you can use the bank feeds to kind of double check that the check has cleared and you're using it as kind of a reconciling situation so that's the one scenario that you can do now the other thing you can do is you can say well maybe I want to outsource all this stuff to a third-party payroll professional and they can help me with some of the accounting stuff with sending out the pay stubs and that kind of stuff and they can deal with any kind of human resources things and possibly help me out with benefit programs that I might not be as aware of such as possibly health insurance and other kind of benefit 401ks and that kind of stuff maybe they can help me to set that kind of stuff up so if you're doing that then they're going to handle hopefully the creation of the 941s to 940s given the pay stub situations over and all that kind of stuff and you then just need to pull in enough information into your system to properly record the financial statements so on the financial statements if I go to the balance sheet in the income statement then usually what's going to happen when you process payroll obviously you're going to have a decrease to cash the other side is going to go to a payroll expense I'm just going to talk it out here we won't actually record it I'm just going to try to give an idea of how the bank feeds would fit into your payroll process so then you'd have an expense for payroll expense and then you'd have the liabilities that you'd have to put in place which were the withholdings that are going to be in place and then after you process payroll that would be this step when we record payroll after you process payroll then we're going to have to pay the liabilities that we withheld Social Security, Medicare, Federal Income Tax our portion of Social Security, Medicare, Federal Income Tax Unemployment, FUTA, Tax we're going to have to pay that then and write a check for that and then quarterly we'll have to do the 941s and all that so that's going to be the liabilities and then on the income statement we'll have the expense side of things so I'll just give a quick scenario in Excel of what a paycheck might look like just do a quick register just so you can kind of imagine the accounts that would be impacted from an accounting standpoint so I'm just going to format this Excel worksheet just do this fairly quickly and I'm just going to say this is going to be what am I doing here? numbers, currency, boom, boom let's say this, no decimals for now and so I'm just going to say alright, let's say we've got employee 1 and employee number 2 and I'm going to say the earnings earnings for so employee 1 generic employee 1 and employee 2 generic employee 2 let's say that the earnings are hold on, I put this way down here what happened? let's delete that let's make it bold so let's say employee 1 earns $1,200 for whatever pay period a week or whatever we're doing and then we're going to say that the withholdings will at least be the withholdings for taxes, the federal taxes so that's FIT, federal income tax which is based on the tables you get from the W-4 information and so on QuickBooks hopefully will help you to deliver the W-4 and the employee can kind of do that so I'm just going to make up another number here let's say it's like 180 or something and then we're going to say that we have the social security which is right now I believe it's something like this times .062, that's the employee portion and then we're going to have the Medicare which I might misspell, that's going to be something like this times the .0145 and then you might have state taxes you might have other withholdings that you have to put in there as well for like 401k, voluntary withholdings and so on but just as a simple scenario let's do this and say this is the net check so the net check is going to be the sum of these so that's how much the check is going to be for let's say employee E2 earned $2,500 and let's say the withholdings for FIT are $2,30 and then this is negative this times .062 this is negative this times .0145 and then I'll sum this up and then we have the total for all of our employees I'll sum this up this way and so boom there we have our total that I can add down like this sum up like that and we can also double check it adding this way so there's our numbers I'm going to make this like centered let's make it black and white on the headers let's put a bracket around this just so we can see it a little better let's put an underline here so we can kind of visualize this if I did this internally within QuickBooks then I would have to have the detail for each individual employee in terms of their earnings on a paycheck by paycheck and on a year to date basis so I can provide it to them but if I'm having an external payroll provider do it then I really only need the total that's going to be going into my system so that I can get my financial statements correct and the payroll provider can kind of do everything else now if I was to record this into the system then in total you would say ok the net check is going down by three thousand seven so if I go back on over here cash would go down of course by three thousand seven you got to be a little bit careful of that because when it's coming through the bank feeds we can see that it's going to actually be two checks that are going to be for this amount and this amount but total cash is going down by three thousand seven you've got to be careful of that so that when you do the bank reconciliation you can reconcile them and that's where the bank feeds can come in and then we're going to have a liability which will be these three which adds up to six ninety three so that's going to be the six ninety three in the liabilities area of six ninety three and then you're going to have the difference that's going to be the net check and then the three thousand seven hundred that's going to be what's on the income statement as earnings so you've got payroll or wages so wages let's see this way wages will be three thousand seven hundred expense and then the cash will be going down in total by the three thousand seven and then the liabilities should go up by this six six ninety three if I did a journal entry for it for example payroll expense if I just do debits and credits would be going up by this and then payroll let's not pay payroll liabilities would be going up in the credit direction for the sum of these and then we've got check-in account would be going down by that right and then we also have the employer portion of taxes so employer taxes which we have to match social security Medicare and we might have food tattoo but just at the minimum social security Medicare for our two employees and you can then sum it up this way for the total and sum it up this way and then you can sum it up this way if you wanted and sum it up across like this boom and you can double check it by adding these two so there's our total liabilities so then you would also have payroll pay payroll tax expense which is our portion of the taxes debit and then once again payroll liabilities I know there's misspellings and whatnot all over the place but that's the general payroll transaction that would happen and you can record it on an employee by employee basis which you would have to do if you were doing it internally or you can record it as a total which you might do if the payroll was done by an external payroll provider and you're just trying to enter the system into your system in such a way that your financial statements will be correct however you got to note that as they clear the bank they're going to be two checks here so when you do the bank reconciliations possibly with the help of the bank feeds that's going to be something that you got to kind of be aware of so that you can properly reconcile but that's the general idea now note that it might be possible it is possible if you're working with a third party provider to even say hey look I want to be on a cash based system as much as possible so instead of me taking your reports that might look something like this and recording the transactions looking something like this periodically I'm just going to wait till everything clears the bank and I'm just going to record it to one account called like payroll expense which is misspelled up here but like payroll expense so that would mean when the checks clear the bank I see that check clearing the bank I'm just going to record it to payroll expense decrease the cash the other side's payroll expense I'm just going to record this to payroll expense and then when we pay off the liabilities I'm going to wait and just record these to payroll expense as well so that you can automate the system on the bookkeeping side so if you're a bookkeeper and you're saying I'm trying to automate everything I just want to record everything the payroll expense and then at the end of the year you or your CPA or tax preparer as well as your payroll provider can then say okay I'm going to get the payroll reports from my payroll provider breaking out the unit of date information that looks something like this and I need to get that to the CPA or tax preparer so they can make my financial statements correct at least for tax preparation and possibly for external reporting possibly just on a yearly basis and they can then make the adjustment necessary based on these reports to account for the liabilities as of the cutoff date 1231 the end of the year to account for the breakout between payroll taxes and payroll expense if necessary for tax preparation purposes at the end of the year so these are just some ideas that you can go through if you're a bookkeeper or you're thinking about adding the payroll there's not like a one size fits all if you go to QuickBooks they're going to say you should buy the payroll and run it through QuickBooks obviously because you're going to pay them to do that if you go to a payroll provider they're going to say we should do it on our end it really depends on how much control you want over the payroll and what kind of network you might have so a bookkeeper could try to you might try to scale your bookkeeping by saying I want to do everything within QuickBooks and automate everything that I can and then outsource everything that I can which I cannot automate and that could work with payroll even as well because you would outsource the payroll to like an ADP or a paychecks you just record the payroll that goes through your checking account as it hits the checking account on a cash based system and then you tell your tax preparer at the end of the year to make the necessary adjustments breaking out payroll expense to payroll taxes payroll expense, payroll liabilities any necessary adjustments at the end of the year and that could work but only if you have a dependable payroll provider and you have a dependable tax preparer which could be yourself, you might do it yourself and try to automate and do your own taxes at the end of the year but oftentimes a network would be nice and then you can scale up and as long as everybody's tuned in to what the system is doing then you know it could be an efficient way to go so those are just some options with the payroll you can look into the cost of payroll within QuickBooks and again I recommend talking to your tax preparer before setting up payroll it's one of those things that you would rather the adage is measure twice cut once with payroll rather than tinkering some things are good to tinker with until you figure it out payroll is not usually one of them because when fixing the problems usually happens at the end of the year with the W-2's and all that kind of stuff the worst time to kind of fix problems that have been building through the entire year so that is the payroll