Explation of income and expense report

[fumcwortham]

Hi,

I need help again. Thanks so much to all who have helped me out in the past. Your help is very much appreciated.

On the Income and Expense by Month report it list the Minister of Music salary as the gross amount for the month at $1045.00. Further down the list is payroll taxes of $797.00 this amount is what we paid in payroll taxes to the IRS plus the payroll taxes taken out for the month of January. One member of our finance committee says that this inflates our budget and overstates our expenses. I tried to explain it to him, can someone please help me with a better explanation of why the program is set up this way and or what this means.

Thank you so much for your help.

Carolyn

[JohnDMeyers]

The $797.00 should be recorded in the Liability section, not as an expense.

The reason is this:

The $1,045.00 expense includes withholding. Multiply $1,045.00 by 12 months and you get $12,540.00 in expenses. $797.00 is included in that $12,540.00.

By having a separate line item expense of $797.00, you are adding it a second time as an expense, for a total of $13,337.00.

By using a liability account to record the $797.00, you do not add it as an expense the second time. The liability is cleared when the $797.00 is paid to your tax agency.

[fumcwortham]

Can I delete the 797.00 and reenter it into liability? How would I do this?

[JohnDMeyers]

It depends on what you did you get the $797.00 in the expense line item.

Go into Fund Accounting / View Posted Transactions and locate your $797.00 transaction and REVERSE it.

Since you already apparently paid the $797.00, you won't need to create the liability. The liability is just a "place holder" to keep track of the amount, until you pay it.

In Payroll, it works like this:

Pay the employee:
CR 01-1110-000 checking $1045 ($978.58 net pay plus $66.42 Fed W/H)
DB 01-5120-000 payroll expense $1045 ($978.58 net pay plus $66.42 Fed W/H)

DB 01-1110-000 checking $66.42
CR 01-2120-000 Fed W/H liability $66.42

(notice that you are "putting back" $66.42 into checking, so the checking account only sees the net pay of $978.58 going out to the employee. However, the employee's expense account shows the net plus the Fed W/H).

Pay the tax:
CR 01-1110-000 checking $66.42 (now the checking sees that the total $1045 has gone out)
DB 01-2120-000 Fed W/H $66.42

After this transaction, the balance in the liability account is $zero

[Jeff]

The payroll taxes expense account is usually to show the employer portion of Social Security and Medicare taxes. Taxes paid by the employee would come from their salary expense line. For an employee making $1,000 gross dollars per paycheck a sample transaction would look like the following:

Code: Select all

Account                     Debit   Credit  Explanation
-----------------------  --------  -------  ------------------------------------
Bank Account                        841.42  (Check Amount)
Salary Expese            1,000.00           (Gross Salary)
Federal Taxes Liability              38.08  (Fed Withholding)
Federal Taxes Liability              62.00  (Employee Social Security)
Federal Taxes Liability              14.50  (Employee Medicare)
State Taxes Lianility                44.00  (State Witholding)
Payroll Taxes Expense       62.00           (Employer Matching Social Security)
Federal Taxes Liability              62.00  (Employer Matching Social Security)
Payroll Taxes Expense       14.50           (Employer Matching Medicare)
Federal Taxes Liability              14.50  (Employer Matching Medicare)

                         --------  -------
Total Debits & Credits   1,076.50  1076.50  

The problem probably came when you wrote the check to pay the taxes. At that time the expense was already recorded. When you pay the taxes, you will credit the bank account and debit the taxes liability account.

NOTE: If you only have ordained staff that are paying their own taxes, you might not have any employer matching taxes to pay and then would not need to use the payroll taxes expense account.

[fumcwortham]

Thank you all for all your help with my income and expense report. What I did wrong was set up payroll wrong. I did not include the employer liability. Unfornuatly I deleted the payroll and reset it. My problem now is can I reenter past payroll information such as check numbers and dates and how do I do that. I have add the liability part but unable to figure out how to reenter past payroll checks.

[Jeff]

To enter prior payroll information, you will need to process payroll the prior pay periods. If the tax tables are all the same it should calculate the same amounts as before. If the amounts are different, you can override the tax calculations and set them to what the original paycheck.

[fumcwortham]

I process payroll then will I need to post payroll. Will this not create a duplicate transactions in the Fund accounting?

[NeilZ]

I process payroll then will I need to post payroll. Will this not create a duplicate transactions in the Fund accounting?

In this case, since you previously posted manual transactions in Funds Accounting, you want to post to Payroll only. There is a selection 'pull down' that will show you this option just before you post.