Using AR for Preschool

[tbcbrown]

About a year ago, I sought and received help for this topic. Now, I need additional clarification to make sure I have set up appropriately for using when school begins. Since there are only 5 employees and since the school uses the church's tax ID, I used the same fund. I created a salary expense account. When the check is processed, the payroll liability goes to the same account as the church employees. I have an AR account set up to bill the school. I list gross salary which also includes all liability amounts for employees and a separate account for employers ss and Medicaid. There are three figures on the bill. Is this sufficient or should I be listing net, employee's ss and med and employers' ss and med. I ask this because I don't know how the system posts the figures when we receive payment from the school. Only one 941 is filed. I greatly need someone to describe the way the system processes this data. Thank you.

[tbcbrown]

Neil, where are you.

[NeilZ]

Neil, where are you.

I got nothing.

This is a very unusual setup, which I why I was hoping others would chime in. Normally, when payroll is run, all funds are taken out of the operating checking account, defaults to 01-1110-000.

Everything you get from the school, should be covered in the gross salary, amounts for health care, and for employer's SS & Medicare. This should cover everything you will be paying out of payroll. The employee's SS & Medicare are deductions from their salary, so the three items you list on the AR invoice should cover that.

I would definitely have this payroll budgeted out of the Operating Fund, but have a separate income account to show what is coming over from the school so it won't be tied up in the normal contributions income.

[tbcbrown]

It does come out of the operating account and goes back in when the payment to AR is posted. In trying to trace the accounts it looks like everything is going to the right account. The only thing I'm unsure about is the AR payment reflecting the employer's ss and med. It's included in the debit payment and deposit. It is credited to a liability acct. How would you have suggested it be set up. Church does payroll, bills school and school repays. church does 941.

[NeilZ]

It does come out of the operating account and goes back in when the payment to AR is posted. In trying to trace the accounts it looks like everything is going to the right account. The only thing I'm unsure about is the AR payment reflecting the employer's ss and med. It's included in the debit payment and deposit. It is credited to a liability acct. How would you have suggested it be set up. Church does payroll, bills school and school repays. church does 941.

When payroll is posted, Social Security/Medicate and any taxes are transferred from the expense account (as setup in the pay item) and credited to a liability account. When you pay these you should be debiting the liability account and not the expense account.

The reason is that the taxes mentioned are LIABILITIES to the church. These are funds that have been set aside to pay the required taxes.

If you are crediting the liability account from the AR payment, you are bypassing the budgeted expense account. Just as you have expense accounts setup for the pastor and other church employees to cover salary, the Employer half of Social Security & Medicare, as well as any health benefits, you need to setup the same type of expense accounts for the school.

You then should budget against each account, then the schools AR payment should go directly into an Income account to reflect the schools payments. The income from the school, should then equal the payroll for the school. At the end of the year, the budget 'should' be within a few dollars of what the income was.

By crediting the liability accounts directly, you're circumventing the system, and understating the income (payments) from the school. I suspect that if you look at the pay items for the school employees, you'll see that they are setup to use the expense account.

[tbcbrown]

this is how it's set up.
PS Salary Expense PS Teachers 270.00 Income
Taxables Payable Liability 2215 Federal Withholding 0.00 Tax Deduction
Taxables Payable Liability 2217 Employee SS 16.74 Tax Deduction
Taxables Payable Liability 2219 Employee Medicare 3.92 Tax Deduction
Taxables Payable Liability 2215 Employer & 5305 Payroll Expense Employer SS 16.74
Taxables Payable Liability 2217 Employer & 5305 Payroll Expense Medicare 3.92 Employer Liability
Taxables Payable Liability 2220 Employee State Income Tax 3.10 Tax Deduction

CHECK AMOUNT 246.24
Employer Liability 20.66

Accounts Receivable
Item 1- PS Teacher Salary acct 4653 - 270.00
Item 2 - Employer SS Liability acct 4654 -16.74
Item 3 - Employer Med Liability acct 4656 - 3.92
The school pays back this amount and when payment is made it goes to church's bank acct.
Should I not be using Item 2 and Item 3 in ar, just putting everything owed in Item 1 total.

[NeilZ]

Accounts Receivable
Item 1- PS Teacher Salary acct 4653 - 270.00
Item 2 - Employer SS Liability acct 4654 -16.74
Item 3 - Employer Med Liability acct 4656 - 3.92
The school pays back this amount and when payment is made it goes to church's bank acct.
Should I not be using Item 2 and Item 3 in ar, just putting everything owed in Item 1 total.

Yes.

You should just have the following Income accounts (which I'm assuming the 4600 series accounts are)
4643 - Preschool Payroll

The reason is that everything is coming out of your operating fund, and checks written from your main account.

You then should have the following expense accounts (adjust the numbering for your situation and whether you need the director)
5160 - Preschool Salaries (level 4)
5161 - Preschool Director (level 5) budgeted salary for year
5162 - Preschool Teachers (level 5) budget for year
(I don't know if you have salaries setup or hourly, but you should budget the entire estimated payroll for the teachers here)

5300- Employer Expenses (again PCPlus default may be existing)
5320 - Preschool Employer Payroll Taxes (budget for year, you want to keep this separate from your normal church taxes for visibility)

You will then setup TWO separate Payroll Items using the Maintain Item Descriptions. We're using 940 & 941 for standard Employer Payroll Taxes. I'm not sure what the PCPlus default is.

However, you will create two new Payroll Items for PS Employer SS and PS Employer Medicare. The expense account should be the 5320 account budgeted for Preschool Employer Taxes. The Liability account should be 2217 for SS, and 2219 for Medicare.

The system will then figure out the correct liability amounts and move them to the liability accounts from which you then pay the feds.
In this manner you have a full audit capability showing where the employer taxes are being calculated. Bypassing this and putting money directly into liability does not have the audit trail, and can lead to over/underpayment as you may be calculating those amounts manually.

[tbcbrown]

2 clarifications please - is 4643 to an AR income or just income. How will I bill the school setting up as u described. Also, in Paragraph 6, under maintain item descriptions, only the liability acct is requested and no expense acct ???

FYI, I actually had it separated and the inactive accounts plus items under maintain item descriptions are still listed so I can just use those. Even had a separate payroll expense. My recollection is that someone told me I was doing it incorrectly, hence reason for change.

Thank you greatly.

[NeilZ]

2 clarifications please - is 4643 to an AR income or just income. How will I bill the school setting up as u described. Also, in Paragraph 6, under maintain item descriptions, only the liability acct is requested and no expense acct ???

FYI, I actually had it separated and the inactive accounts plus items under maintain item descriptions are still listed so I can just use those. Even had a separate payroll expense. My recollection is that someone told me I was doing it incorrectly, hence reason for change.

Thank you greatly.

1. The Account number is an income account in the Chart of Accounts, you want to have it separate from normal tithes & offerings, but still show it as income to the operating fund.

2. You're not selecting EMPLOYER LIABILITY from as the type of item you're selecting. Just as you have an expense account when you create an income Pay Item, you also have an expense account for an Employer Liability item.

Don't know who would tell you that you're doing it wrong. Yes, the preschool employee is listed as a church employee since you're using the same tax ID, but you really want to keep the salary and employer tax expenses separate so you can show an audit trail.

[tbcbrown]

Got it, but still need to know the proper way to bill school.

[NeilZ]

Got it, but still need to know the proper way to bill school.

You can use the AR system to bill the school just make the Item point to the income account.