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William Brighenti, Certified Public Accountant
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A Quick Trick for QuickBooks Payroll Posting and Bank Reconciliation
Are you experiencing difficulty reconciling your payroll bank account in QuickBooks?

QuickBooks Payroll Bank ReconciliationQuickBooks is an excellent accounting software package for the small business owner today. It offers many powerful bookkeeping, accounting, and tax features at a very affordable price. Equally as important, it is perhaps the easiest to use of all of the accounting packages on the market today largely because of its emphasis on visual elements and mouse-click implementation and drill-downs. Unfortunately, many of its users, lulled by these powerful hypnotic features, think they are born again accountants or bookkeepers and jump right into setting up a company on QuickBooks and entering transactions, without having the requisite knowledge of accounting. Wrong! Disaster looms for them and the company eventually down the road. Perhaps you or your company has traveled that road already. Don’t panic: hire a professional to assist you; never attempt to fix a QuickBooks accounting mess you created yourself.

A critical QuickBooks accounting area where clients often experience a great deal of difficulty in correctly processing involves the payroll function of a company. Amounts of monies and reports have to be distributed to employees, the internal revenue service, state revenue and labor departments, benefit providers, etc., on a regular weekly, biweekly, monthly, quarterly, and/or annual basis. Significant penalties and interest charges may be imposed upon the employer who fails to comply on a multitude of legal requirements on an unforgivingly timely basis. Although outsourcing payroll to service providers may alleviate many of the above mentioned concerns, few providers, if any, and fewer clients, post the correct accounting entry in the client’s QuickBooks company file after each payroll as well as reconcile the bank account of the client at the end of the month without problems.

If you are not a trained accountant, do not attempt to set up payroll—nor, for that matter, the entire QuickBooks program—for your company by yourself. You will not save any money; in fact, you will spend in the long run many multiples of what it would have cost you to have hired someone with a solid background in accounting and QuickBooks either to assist you or undertake the entire set up for you. There are far too many items to process correctly, in addition to accounts and their linkage. Leave it to the pros and save money and headaches.  Besides, too much is at risk if you foul things up:  all of the company's records, which are worth thousands and thousands of dollars.

If you have a solid accounting and QuickBooks background, here is some additional advice if you wish to process payroll in house. Do not only set up a separate bank account for payroll, but set up a separate company for payroll as well. By doing such, you can restrict other users’ access to payroll information. Privacy laws are a major concern to employees and governmental bodies today; penalties accompanied by lawsuits can put you out of business. Internal controls over QuickBooks functions should always prevail over other considerations. And it will not cost you one additional cent to be careful.

Many QuickBooks users outsource payroll to a payroll service provider, including the printing of the payroll checks and all governmental filings. However, these clients often experience difficulty in reconciling their bank account every month because they post a consolidated journal entry or two in QuickBooks to reflect the effect of the entire payroll transaction in the accounting records. Why? Not all payroll checks clear by the end of the month. Virtually every employer has at least one employee who doesn’t bolt to the nearest package store on Friday evening to cash his or her payroll check, but, instead, places it in a drawer, to be deposited, if ever found, sometime before his or her death. Moreover, governmental agencies, not especially known for their timeliness, often require more than a few days to process checks, if not weeks or months. Consequently, posting the consolidated journal entry for the weekly payroll into QuickBooks fallaciously assumes that all payroll checks have cleared. Never true. So how does one reconcile the payroll bank account without fudging (we hope that your bookkeeper does not force the reconciliation, assuming a reconciliation is done at all)?

Please be advised that if you set up a separate company in QuickBooks in order to process payroll, you will also be required to post a consolidated journal entry into your original QuickBooks file to update your general ledger. Consequently, you will also be required to reconcile your payroll bank account in a similar fashion.

When outsourcing payroll or setting up a separate payroll company, the QuickBooks workaround for uncleared payroll checks at the end of the month involves a decomposition of the total net payroll for the month into amounts cleared and uncleared, with the uncleared total further decomposed by individual checks. By doing such, one merely can click the cleared total appearing in the bank reconciliation in QuickBooks and obtain a match to the ending balance appearing on one’s bank statement. Of course, one will have to list all checks uncleared by scrutinizing the cleared payroll checks presented numerically on one’s bank statement; hence, the importance of having a separate payroll bank account, keeping all other operating checks from muddying the waters.

Assume for the month you issued 80 payroll checks, direct deposits, and electronic fund transfers totaling $44,260.00, and the following 4 payroll disbursements, totaling $2,697.16, remain outstanding on your bank statement at the end of the month:

Check No. 137
Brian Boozer
$587.36
Check No. 164
Catherine Cratchit
$642.20
Check No. 171
Sydney Sleeper
$350.10
Check No. 172
Internal Revenue Service
$1,117.50

The QuickBooks quick fix is merely to enter the four checks with the amounts, excluding the names of the employees and vendors since you do not wish to contaminate your employee or vendor records (create a generic “Payroll Clearing” name vendor for such), offsetting the individual posting amounts to the same payroll cash account, resulting in a net zero balance in your general ledger. Then clear all of the 80 original payroll charges appearing in your bank reconciliation and the 4 credits totaling $2,697.16, removing  net charges of $41,562.84 and leaving the four uncleared checks. Voila. Your payroll bank account now balances, of course, assuming there are no other errors.

Companies with experienced accountants often prefer keeping the payroll function entirely in house, since it ordinarily provides more control over its processing, greater accuracy, and cost savings. Too often a payroll after its submission to an outsider service provider has to be changed, resulting in hot payrolls and panic attacks. However, a major limitation imposed by Intuit on in-house payroll processing is the absence of payroll updates on an annual basis. Apparently Intuit desires the QuickBooks user to purchase either one of its payroll plans or newer QuickBooks versions with the updated payroll tax tables. The workaround involves a cumbersome and tedious annual payroll tax inputting of withholdings and the like for those determined not to shell out one additional sheckle to Intuit.

This article attempted to provide a QuickBooks payroll tip to facilitate the bank reconciliation of the payroll bank account, as well as to alert the reader to a few precautionary measures before undertaking the processing of payroll in QuickBooks. If you need further assistance with QuickBooks, please contact your outside Certified Public Accountant, Certified QuickBooks ProAdvisor, or William Brighenti, who is a Certified Public Accountant as well as a Certified QuickBooks ProAdvisor.

This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.  For further information, please consult appropriate professional advice from your attorney and certified public accountant. 

Have a tax or an accounting question?  Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants.  For information and assistance on any tax and accounting issue, please visit our website, Accountants CPA Hartford, and our blog, Accounting and Taxes Simplified.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor.
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