 zero accounting software 2023 payroll transactions using bank feeds get ready to become an accountant hero with zero 2023 here we are 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 were 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 purchase and use ourselves Ugg slippers I usually walk around my home in just my socks but I wanted a high quality pair of slippers that didn't have a heel on them so I can slip them on easily give me a little bit more warmth than just my socks provide and which has a sole on them so I can deal with messes in the home such as spilled liquid or broken glass without getting my socks wet or my feet cut up and the Ugg slippers do a great job with that I like the quality of the slippers they feel like they're gonna 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2022 so January 2022 to December 2022 and updating the report alright let's go back to the first tab now go to the accounting drop-down we're looking at the bank account information having attached or uploaded the bank feed information before we got the checking account hit the drop-down we want the account transactions alright so we've been constructing our financial let's go over to the reconcile we've been constructing our financial statements as much as possible directly from the bank feeds now we want to think about a payroll situation obviously you would only have to deal with a payroll situation if you had employees if you're in the United States and this is probably similar to other areas as well because there's different laws related to someone is if they're an employee usually although those laws will differ from place to place because they include things like payroll taxes for example so when you're thinking about growing the business what you want to think about is do I want to hire contractors in order to grow the business in other words if I go back to the balance sheet here and we're trying to increase the business our options generally will be I can hire a contractor possibly to help me out with the work I can hire an employee possibly to help me out with the work or I can hire someone a partner I can take on a partnership give some kind of partnership equity interest in the business in order to get someone to help me out now with an employee you usually have the most control over the employee however it's also can be kind of the most costly because you also have to deal with payroll taxes and the possibility of getting sued and the human resources and all that kind of stuff if they're a contractor then you typically have less control exactly over what they are doing but you kind of avoid the more complexity with the employees and it's easier to remain on a cashed-based system just from an accounting standpoint if they were a contractor and then if you take someone on as a partner then you want to really make sure that you've considered doing that because then they have an equity interest in the business and you have to kind of negotiate every decision that you make with them so it's another form you could pay them instead of cash possibly with an equity interest which is the promise for future a revenue generation but then you're kind of locked in to a partnership situation and they have you know a say so you want to make sure that you're on the same page and have a good partnership agreement set up now normally if you're thinking between a contractor and an employee in the united states the iris tries to set up pretty strict lines to determine whether someone is a contractor or an employee which you want to make sure you're in compliance with or the iris could you know come after you right so if you treat someone as a contractor but the iris says they are an employee which is usually the bent that the iris is on they try to make people employee ease because then you have more duties that you have to do you have to basically act as the tax collector and make withholdings which makes the accounting more complex as well and usually those rules have to do with how much autonomy they have towards a typical task so if you're hiring someone and they're working in your office from nine to five and you tell them what to do the whole time and you provide them with all the resources they're pretty much an employee and however if you're hiring someone to do a job and they have their own tools and they and they have their own kind of schedule you're just saying i want to done by this due date then they're more likely able to be hired as a contractor in that instance so if someone is an employee note let's go over to our flowchart over here this is our QuickBooks desktop flowchart but we're just looking at it in terms of of the flow of the documents which is basically the same for any kind of accounting system if they were just a contractor then it would be easy to pay them as a normal kind of vendor cycle up top we we could wait till we could pay them electronically for the work that they did we could we could and they could bill us forward and we can basically just record it through the bank feeds as contractor payment or something like that and it would be almost as easy as any other bill like a utility bill or something although we might have to deal with 1099 reporting and whatnot however if they're an employee then we have to think about how we're going to deal with the added problems of employees in the united states the added problems are we have to have a withholdings related to them we have to have quarterly reporting typically 941s we have to have year-end reporting 940s w2 and w3s another kind of human resource kind of entanglements with the employees which make what would otherwise be just a simple kind of vendor transaction into you know a much more you know complex and detailed transaction from a bank feed perspective then if we're processing the payroll within zero using gusto we can't just wait till something clears the bank and just record it as payroll expense because we're going to have to record the withholdings within the system however your other option is to say maybe i have a third party provider do the payroll so this is as a bookkeeper what we want to be thinking if we're trying to automate everything with the bank feeds how do i work around this whole payroll situation well one way that you could do it is have possibly working with another company outside of zero uh like an adp or paychecks or some other payroll provider they do all that other stuff they facilitate the withholdings and make the payments and give the paycheck stubs do the 941s the 940 the w2s the w3s and then you just record things and you could possibly even make it on a cash basis as they clear the bank account noting that at the end of the year when you do your tax preparation or external reporting you're going to shore up your books using an adjusting entry kind of concept at that time using the payroll reports uh as of year in so that's one method that you can that you can use if you're doing the payroll internally what will typically happen is you're going to have to think about your payroll periods usually weekly biweekly semi monthly monthly that you will be paying the employees when you pay the employees you're going to have a uh withholdings that will take place which will be an accrual component and then you're going to have to pay the liabilities uh which are paying off the accrual component that you had when the payroll and then you'll have to deal again with the w2s the w3s the 940 the 941s so let's get an idea of just what the payroll does so we can think about these two options uh and how the bank feeds would fit into it so i'm just going to open up excel here and just put together an imaginary very simple payroll example uh so we can see what happens i'm going to hit the drop down i'm going to say format these sales currency bracketed negative numbers and i'll get rid of the dollar sign i'll remove the decimals and then i'm going to hold control and scroll up i'm just zooming in so i'm at 175 and let's just let's just say we had a couple of employees i'm just going to say employee one and employee two so we'll just make it nice and generic and i'll format this to bold and i'll make these a little bit larger so we can fit them and then i'm going to center this home tab alignment center font group it's going to be black and white and then over here we'll say black and white all right and i'll delete these first two i'll move it up to the top i don't know why i started on two all right so then let's say that they have earnings earnings and then f it federal income tax social social social security medicare and then the net check so let's say this first one had earnings of 1200 on a payroll period weekly or uh semi-weekly or i mean bi-weekly semi-monthly or monthly or something now we have to take the federal income tax this is going to be difficult to calculate because we have to get it from basically the w4 and then look at tables and whatnot to figure it out it's useful for software to figure it out gusto which is can be done internally in zero has the ability to do that but it still adds a level of complication so i'm just going to make up another a number 180 so we're taking their income tax away from them and paying it on their behalf like like they're a baby and they can't do it themselves because the government wants to make us their little tax collector and it's really annoying but whatever and then we also have to take from them negative i'm going to pick up this times 0.062 which is the social security so again this is their tax we're just being forced to take it from them on their behalf because the government doesn't trust them to pay their own way and we have to treat them like that so 0.0145 and so then we're also going to take out medicare so then the net check now note there might other be other taxes as well or other uh state taxes and then we also could have other benefits which are voluntary withholdings like uh like health care and whatnot but i'm going to sum this up which will subtract it out that's the net check right and let's say we had employee e2 2500 they had i'm just going to make up a number 230 of of fit the social security is usually uh somewhat of a flat tax so times 0.062 and then the medicare is usually somewhat of a flat tax 2005 times 0.0145 summing that up all right so there we have it so if we were doing this in gusto we have to process the payroll so that the net check would be decreasing the checking account by this amount and then the earnings the live the expense would actually be this amount and then we would have a liability what we took from them would be the sum of this 272 which would be in in a liability that we would have to later pay now we also have to report this stuff to the employee with a paycheck stub even if we're paying them with a direct deposit electronically we have to report this to them on both a paycheck by paycheck basis and a year to date basis so although none of this is really that complex in and of itself when you start to compile all the data together it starts to get complex and then you have to use that data that you're compiling to make the quarterly reports the 941s and then the year-end reports the 940s w2s and w3s if we total this up i could say all right the total is this now if i treated this as though they were like one employee i could just total this up this way right and say that's the total and i can sum this up this way right and i can i can also kind of figure it this way i would have to i would have to figure the sum still of the f it but if these social security hasn't hit a cap i can kind of double check that number because it's really the 3700 times 0.062 and this is like this number times 010145 and but it's a negative and then i can sum that up so this is just a double check on the total double check not like a check but we'll just say total two as though i could so let's make this black and white and let's center it let's put some brackets around this home tab font group and we'll bracketize it so there we have it all right then we're also going to have employer taxes that we have to pay over and above this so these are employer taxes and so that includes social security and medicare on the employer side of things let's do this black and white which is basically just going to match so we have to match so these are taxes that aren't being paid by the employee these up here in theory are being paid by the employee we're just the ones that have to take it from them and pay it on their behalf we're the tax collector because the government made us be the tax collector and so that's going to be then a total sum of these two equals the sum of these two and then we could total total employer taxes is the sum is the sum of these two and then we can add those up so again you can see this gets somewhat complex even with just this little example right now if so if you do this internally you could set it up in gusto and gusto will help to calculate the fit and the internal portion and the external portion and it'll help to compile all this information in your zero system so that you can then help generate the reports and make sure that you're giving all this stuff to the employees but you'll have but you can't just rely on the bank feeds then you're going to have to record this stuff check by check in the normal payroll process and then as it clears the bank you will match it to the bank now if you want to say hey look i want to make this as easy as possible and not do all the payroll but rather just try to record everything with the bank feeds you could try to have someone else do the bank the payroll and uh and and they would deal with all the other stuff and then you just enter it into the system periodically and uh when you do that you don't really need all the detail i don't need to see each employee even and i don't really need to have all the data on a paycheck by paycheck stub as well as a year to date which i would need to provide to the employees right i just need the information to make the financial statements correct at the end of the period so let's first think about what would be the transaction if we recorded this as just like one employee one big employee uh we would say okay i would say payroll payroll expense would be the this amount and then payroll liability liability would be equal to the sum of this and then the paycheck paychecks would be the negative sum of this so if i was to just take this information and report it periodically from a third party provider i could enter like a journal entry that would look like this now this isn't perfect because notice that the amount that's going in is three thousand seven what would actually happen are two checks when i do my bank reconciliation using possibly the bank feeds i would have to verify that number to these two checks so i could enter these two amounts you know individually or i might use a separate checking account to kind of double check that number and then i would have the second bit here which would be payroll tax expense which would be equal to this so a negative this i'm doing debits and credits here and then and then this would be another payroll liability so if i was going to properly record just to get the financial statements recorded properly every time i run the payroll i can get the information from the payroll provider in this format and instead of entering all the detail i could enter just these transactions to see the total then i can verify this number through the bank feeds which would be actually a combination of these two checks now if you wanted to do it in an even easier system if i use it a third party provider you might say hey look i'm just going to wait till everything clears the bank and i'm just going to record everything as payroll expense right i'm just going to record everything as payroll expense when it clears the bank and that way i'm just going to automate i'm going to be on a cash-based system even with the payroll and i'm going to let the third party provider outside of zero not using gusto on adp or a paychecks deal with all that other stuff right if that and then at the end of the year i'm going to ask my accountant or myself on a yearly basis for external reporting and taxes to shore up my accounts for whatever needs i have external reporting or taxes right so if that was the case notice it still kind of works out because this is all just a timing difference right so if i have an external person doing uh the payroll then i could just wait till things clear the bank i'm going to see these two amounts clear the bank when they do i'm just going to record them as payroll expense using the bank feeds right so i'm just going to say all right pay i'm just going to say uh payroll expense is going to be this i'll just add them together this and this and then we're going to say uh the checking account cash is going to go down by uh by the same amount boom right and and i didn't know what notice i recorded the net check not the gross check so it's wrong because it should be the amount that's going into the hold on a second the amount that's going in should i got a little turned around because this is three thousand seven and this is three thousand seven hundred this is three thousand seven yeah i just lexified myself on that but no okay what should be in there is is this amount uh the the three thousand seven and then i should have you know uh because the full amount should be in in there and then i should have the payroll tax expense down here but what's going to happen once we actually pay these liabilities i'll see those come through the bank feeds when those come through the bank feeds i'm just going to record them as payroll expense as well so i'm just going to say payroll expense at a later date when those clear the bank feeds will end up being this and it's going to come out of the checking account it's just going to have a timing difference uh as to when that happens and then i didn't record this payroll payroll tax but at some later time i'm going to pay off those liabilities again and when i do that i'm going to see that come out of the checking account which i'm just going to call call payroll expense again and it's going to come out of the checking account so i'll just be on a cash based system and i can automate everything and everything's going to payroll expense and then at the end of the year uh i can i can ask my accountant or myself if i'm doing the accounting or the taxes to then take the reports from the payroll provider and make any adjustments that need to be made meaning i might need to break out between payroll expenses and payroll taxes and i might need to break out where what the current payroll liabilities are for uh for the period as of as of the end of the year right so i so those are the different systems that you can kind of use so what you really want to do with the payroll is you want to be thinking if you're doing your own books talk to someone about payroll before you start the payroll and ask them and just pay them i would recommend paying them just for the advice you don't want to talk to someone that you're going to pay for payroll because then their advice will be geared towards their system for payroll you'd like to talk to someone like an accountant that's a generalist on your options for payroll and then pursue your payroll options if you're a bookkeeper you want to think about what kind of bookkeeping are you doing are you doing a bookkeeping system where you're trying to automate everything as much as possible in which case you might have this system where you have an external payroll provider and you have a team that you're working with yourself automating the books payroll provider that's helping with the payroll reporting and human resources and tax preparer or year-end accountant to do period and adjusting entries for the financial statements and the tax preparation or are you trying to do everything internally like you're doing it in-house in which case you want to process the payroll through our zero and use zero to and gusto to basically generate the payroll providing more benefit that way realizing it's going to add more complication on a cruel component and you'll have to account for that when you're when you're doing the bank feeds and how the bank feeds are going to fit into it