 QuickBooks Online 2022 payroll transaction using bank feeds. Get ready because it's go time with QuickBooks Online 2022. Here we are in our bank feed practice file. We set up with a 30-day free trial holding down control. Scroll it up a bit to get to the 1 to 5% currently in the home page. Otherwise, no one is the get things done page. In the business view as compared to the accounting view, changing to the accounting view is something you can do by going to the cog up top, switch to the accounting view down below. We will be toggling back between the two views either here or by jumping over to the sample company file currently in the accounting view. Let's open up a few tabs that we can put reports in by going to the tab up top, right clicking on it and duplicating it back to the tab up top, right clicking and duplicating one more time, tab up top, right clicking and duplicating again. As that is thinking, we're going to jump back on over to the sample company file to see where the reports are located in the accounting view, which is right here on the left hand side under reports. Jumping back to the business view to see where the reports are located. We're in the second tab here. The reports are going to be in the business overview area and then under the tab of reports, I'm then going to be closing up the hamburger. It's still thinking to get to those reports so the reports will show up here. There they are. There's the balance sheet. I told you they would and they did. I was right. I'm going to go into the balance sheet. We're going to be changing the date range up top from 010121 to 123121 and run and then tab to the right and we're going to go into the business overview again into the reports again, close up the hamburger and go into the P&L profit and loss. The income statement and change the date range from 010121 to 123121 and run. One more time going to the tab to the right tab to the right and we're going to go to the business overview again, go into the reports and close up the hamburger. This time I would like to type in the trial balance, the trustee trial balance and pick it up as well. And that's basically the balance sheet on top of the income statement. Let's do a range change from 010121 to 123121 and run. There we have it. So now we're going to go to the first tab and just think about the bank feeds that we had set up in prior presentations. If you're in the accounting view, that's going to be in the bookkeeping section and then in the transactions up top, banking being the first tab. If you were in the accounting transaction or accounting look and feel here, it's in the banking on the left hand side. Accounting view, I believe it's called, is the term. You're stumbling over and tripping on like a rake that just tits you in the face because you stepped on it. Okay. So anyways, we brought in this information directly from our financial institutions. They're in here in what we're calling the bank feed limbo. They have not yet been brought over to the promised land. That being the financial statements to be helping us out for the financial statements, we know that to bring them over, we need to add at the minimum the customer or the vendor and the account, the account being the main or minimum thing that we would need and we would want customer and vendor. Let's think about how the pay roll would fit into the system, keeping the same theme that we have here, that theme being that we want to first think about the easiest method. I'm jumping to the flow chart here and I want to think about how we can basically build our financial statements just on a completely automated system dependent on the bank feeds and then take steps away from that as we add more complexity, go into a system where we're going to need some more data input other than the bank feeds, sometimes because we want more internal controls, sometimes because we not want or need a more accrual type basis. So if you think about the payroll, the first way that you could set up payroll is obviously to put payroll or run payroll through the QuickBooks system. So we can add the payroll to QuickBooks. I won't get into the details of that now, but there's basically a few different tiers that you can run within the payroll and turn the payroll on, which is an add-on type of feature which you would basically be paying for. I do want to point out at this point in time that payroll is one of those things that you want to measure twice in my opinion and cut once would be the adage as opposed to tinkering with something until you get it correct because payroll could be costly if you have to change it over and over the most likely place you're going to have problems with problems of lawsuits or any kind of problems like that are your employees and payroll can be complicated to be switching from payroll company to company or the way you're calculating payroll from place to place. So I would recommend talking to someone independent like a CPA or your accountant who you're not planning on paying for specifically payroll to ask what kind of payroll you want to be set up and then go in and look into those options possibly purchasing payroll. Purchase payroll through the QuickBooks system which means it's going to be calculated within QuickBooks, it's going to basically help you to record the transactions pay your employees and then process the forms that need to be processed including human resource forms and tax forms like the 941 corgally typically the 940 at the end of the year, the W-2s and the W-3s at the end of the year. Your other option is to get an external payroll provider to help you out a company that just does payroll that's not related to QuickBooks or your company in particular but who you are hiring as a payroll provider. The biggest ones out there typically are going to be like an ADP or a paychecks. I'm not advertising them in particular, you could talk to there's many different payroll providers but these are some of the larger type of payroll providers. In their case they would be doing the payroll and helping you out to process the payroll to the specifics of the 941s the 940 some of the human resource type of regulations the reporting of the paste up kind of information on their end. Those are your two general methods. Now if you were to have the information over here in QuickBooks, let's add one more tab I'm going to right click on the tab to the left and duplicate it duplicating the tab if you were to run it within QuickBooks you can go into the payroll on the left hand side and actually be processing the payroll. You can set up the payroll which is typically the most time consuming component and then you can process the payroll the general idea when you process the payroll or the impact that would be on the financial statements if I jump back on to the balance sheet and income statement it's a little bit more complex. Remember that payroll if it was just a standard transaction like you're paying for any other expense account it would be a decrease to the cash account and the other side would simply be going to an expense called payroll expense but payroll is way too complicated for that because we got withholdings at least in the United States for federal taxes, state taxes, possibly other benefits that we're going to be taking out of the paycheck. So that means the actual calculation is a bit more difficult, a lot more difficult so we're going to be decreasing the checking account but not by the gross check but by the net check and then on the income statement if I go over to the income statement the impact on the income statement in general would be some kind of expense account which would be the gross amount not the net amount for payroll expense and then the difference between those two would be on the balance sheet which would be a liability account down here which would be a payroll liability which would include the federal taxes which would be federal income tax for the employee not us the employer social security and Medicare and then we would also have our employer taxes matching social security and Medicare that we would have to pay increase in the liability the other side of that go into the income statement as payroll taxes often times on this side. So it's a fairly complex transaction when you record the transactions in terms of all the accounts that are going to be impacted just from a financial transaction meaning what's the impact on the financial statements then you also have to add up the reporting requirements which means we have to track that information on a year to date basis as well as a basis for the current paycheck as we process the payroll which can start to add up to a lot of data even for just a few employees. So for example it might look something like this if you were looking at like a payroll ledger or register this is similar to the kind of types of reports that might be generated either internally if you process within QuickBooks or externally if you were to get the process done for you by an external provider like an ADP or paychecks so let's just imagine we had a very simplified payroll here where we just have the two employees and let's say the first one earned on the first pay that they had 4583 and then we're going to say that we're going to reduce from their pay just mandatory the mandatory withholdings not getting into voluntary withholdings like 401k plans or health health insurance or what not we're going to say that their their federal income tax FIT not ours not the companies the employees that we have to withhold based on the information they gave us from the W 4 we're just going to say is 720 and that that calculation in and of itself is complex because it's trying to feed in to the individual income tax which is a progressive tax system and therefore not easy to calculate it's not a flat tax I can just not I can't just multiply times a rate I have to take into consideration all these other kind of things to try to get that number correct so that is one place where whoever you're paying to do the payroll is making their money because that's not an easy thing you got to look at tables and whatnot and then you got Social Security and Medicare that are going to be pulled out these are more of a flat tax and so that one those two should be a little bit easier to calculate as well these might not be the exact numbers here but just to give an example and then the net check is going to be the gross pay minus the FIT Social Security and Medicare so from a bank feed standpoint what's going to happen to the bank when I process the payroll if I was to process it for example within QuickBooks then you're going to see the banks going to get hit by that 3572 for that check when you process the payroll and then if you see the second one you're saying okay what about this second employee she earned 2400 her federal income tax is 380 Social Security 149 the Medicare is 35 the net check then is the 2400 minus the FIT Social Security and Medicare the net check that's going to hit the bank feeds come through to the bank feeds that we're going to see is 2856 even though they earned 4583 and 2400 respectively and then you can think about this in aggregate which would mean the total of our two employees would be this amount minus the total FIT the total Social Security the total Medicare then you can calculate the net check by adding it up this way or you could calculate it the same way so we can kind of think from a financial standpoint about the impact on the financial statements as if all of our employees were in essence one employee and look at basically a journal entry that would be the impact on the financial statements so that's the couple ways that we can look at this what's going to happen to the financial statements for this check you should have an increase in the expense account of 4583 for what they earned you should have an increase in the liability account for the sum of these 11 for payroll taxes payable for that employee and then the net check decreased to cash 3572 in this example for Erika the expense would be 2400 what was earned the payable would go up our liability 544 net check decreased to cash of the 1856 and you can think about this in gross or in total what would happen you would have a decrease of an increase to the expense account in total of 6983 the payable would go up by 1554 and the net check would be the difference between the gross pay gross pay minus the taxes on top of that you're going to have to pay social security and Medicare and most an FI federal unemployment tax as well so that would typically be in a simplified format we're not going to include federal unemployment tax for example we would have to match in other words these two that then would increase a expense account which would be a liability account and the other side would be going to the payroll tax expense so although these are social security and Medicare and these are social security and Medicare you generally think of them as two different expense accounts these two are included in the total expenses that are included in the expense account of the earnings of the employee wages or salary or whatever and this one would be the payroll taxes because these are the taxes we have to pay over and above the gross pay that's the general idea of the payroll so how do the bank feeds fit into that well if you're entering this into the system using QuickBooks you can't just be on a cash basis system and if I process the payroll it's going to do this whole transaction for us it's going to record the accrual component it's going to record the liability of this amount one five five four plus the liability here and it's going to record the related expense accounts and it's going to do it properly in essence on an accrual component we're going to see that these checks are cleared and therefore when I go over to my bank feed transaction and I see it clearing the bank feed in the first tab then I'll see these payroll checks come through for example and let's just pretend like this was a payroll check then this would come through and that would basically be the net check I wouldn't be adding it to the system then with the bank feeds I wouldn't be reliant on the bank feeds but rather I would be using that matching component to match up the bank feed to what has actually happened when I processed the payroll so we wouldn't be reliant on the bank feeds and we would be using some kind of basically accrual type of system so the other system you might use you might say okay well what if I have somebody else do my payroll not within QuickBooks I want to be on a cash basis system I don't even want to deal with payroll I want to be a bookkeeper that just basically cranks out everything in an automated fashion and work with other people to do things like processing the payroll like an ADP or a paychecks and work with an accountant they can kind of pull everything together at the end of the period so if that was the case then you might work with somebody else and they would then provide you periodically like a register that would tell you what they actually did when they processed the payroll you would still see the net checks that would come out of the actual account within QuickBooks with the bank feeds but the detail of the gross pay and the FIT would not be in your system because you didn't process it within QuickBooks unless you integrated the systems in some way shape or form but you might not need all that detail in your system in QuickBooks because ADP or whoever else, whoever is the one that is doing the payroll is the one that is going to deal with all that other human resources type of stuff our job as the bookkeeper is to get the financial statements correct for reporting purposes and tax and what not in that type of system so I could take their report for example periodically and enter it into the system using basically journal entries and I could still be in the process of basically entering this into the system check by check which would be gross, the expense goes up by this, liability goes up and then the net income and still do it on an accrual type of basis and then if I was to do that I would still have to match out the bank feeds over here now the other system you might say well why don't I just do a cash system, why don't I just wait till it clears the bank and so you'll have some timing differences if you were to do that but it's possible if you have someone outside doing the actual payroll and basically doing all the human resources for you doing the 941s to 940 and what not you might just say hey I'm just going to wait till this net check clears the bank and when it clears the bank I'm just going to record it as payroll expense just like it would be a normal payroll expense which is wrong from an accrual standpoint because really we should have the 4500 as the expense and then we've got these liabilities that we withheld which we're going to pay in the future but these liabilities that we withheld we are going to pay at some point in time and when we do pay those then we're going to see them in our account as something that cleared the checking account to be able to add them to our system when they actually are paid so there could be a timing difference we'd move away from a strict accrual basis and just say I'm just going to record whatever the net check is when it comes through as payroll expense and then I'm going to recognize that when I actually pay off the payroll liabilities in the future I'll see them come through with the bank feeds I'm not going to worry about me handling the timing of doing that and whatever my payroll company is do that when we actually pay those off I'm going to see them clear on the bank feeds and I'll simply record them also as an expense possibly just payroll expense again which means I'm going to have one account for the payroll expense and one account that's going to include the payroll taxes as well in one expense account and so and then at the end of the period possibly the end of the year or the end of the month for a small company most likely the end of the year you can ask your accountant to say hey look here's my information from my external payroll provider here are the reports that I have I've recorded everything on a cash basis as they have cleared the bank I've recorded everything that's payroll related to a payroll expense I would like you to now take the reports from whoever my payroll provider is and the 941s the 940 the W2s that should all be provided by your payroll provider and then reconcile whatever you need to do in my system to make it on whatever kind of basis it needs to be as of this point in time do the adjusting entry in other words to make the payroll expense correct if you need to break out the payroll taxes versus the wages expense break that out according to the whatever the reports say from my payroll provider and then if there's some liabilities that are still do at this point in time that I have not yet paid then do the adjusting entry and put those in place as well and again you might think that that's a lot of work to be dependent on the accountant for but a lot of times the accountants have to do that anyways because the payroll doesn't line up the cutoff date for the payroll is not going to line up to the cutoff date for the end of the year or the month and so they often have to reverse some of the stuff or do some adjusting entry anyways so it's sometimes it's actually easier if you can just tell them exactly what you're doing as long as you know exactly what you're doing you can you can say you can make the adjustment on a periodic basis so that's another method you might do if you have a good system that you're working with an external provider that's doing the payroll handling the W2s the 940 the 941s that you're going to have to pay for anyways because QuickBooks is going to cost money too so the question is how much does it cost QuickBooks versus the external reporter then you might record your information everything that comes through the bank the net check as basically one payroll expense for example and then when you pay the liabilities those will come through I'll record those as one payroll expense I will ask my CPA or tax preparer at the end of the year to take the reports from the ADP or paychecks or whoever my payroll provider is and note that I recorded everything on a cash basis and do the adjusting entry at that point in time making the financial statements correct for whatever companies we have whether that be taxes or whether that be external reporting purposes at that point in time so that could work for basically small companies that could be a system that could be useful for bookkeepers and if a bookkeeper can create a network between themselves the external payroll provider that they trust and understands what's going on with your system and CPA firm that can do the adjusting entries basically do these adjusting entries that could be a good network to kind of put together