giving credit, debit cards or gift cert to employees

[athomas]

Not an accountant. Want to make sure the accounting audit trail is followed in this process.

Check cashed to purchase gifts crediting bank acct and debiting petty cash. (Only cash is acceptable mode of purchase for cards)

Individual who is purchasing signs for cash and purchases the gifts. Fund acct entry made to credit petty cash, debit asset account and debit fees, if any.

Purchaser returns receipt/gifts to office, sn's are recorded, and they are placed in lock box.

When the gift is given, it is removed and processed through payroll as gift and the appropriate payroll taxes taken out. A fund accounting entry is made crediting the asset account and debiting the gift expense acct. Does this entry duplicate the entry in payroll where the value of the gift is also declared. If so, what entry should be made to remove from the asset account?

Does this have to be so cumbersome? Is there an easier way to accomplish this process?

[NeilZ]

Not an accountant. Want to make sure the accounting audit trail is followed in this process.

Check cashed to purchase gifts crediting bank acct and debiting petty cash. (Only cash is acceptable mode of purchase for cards)

Individual who is purchasing signs for cash and purchases the gifts. Fund acct entry made to credit petty cash, debit asset account and debit fees, if any.

Purchaser returns receipt/gifts to office, sn's are recorded, and they are placed in lock box.

When the gift is given, it is removed and processed through payroll as gift and the appropriate payroll taxes taken out. A fund accounting entry is made crediting the asset account and debiting the gift expense acct. Does this entry duplicate the entry in payroll where the value of the gift is also declared. If so, what entry should be made to remove from the asset account?

Does this have to be so cumbersome? Is there an easier way to accomplish this process?

Let me answer the last question first:

Is this a real 'gift' or is it like a bonus, and taxable? If it is indeed a gift, it may not be taxable, if its a fringe benefit, then its taxable. In that case, you have to process it through payroll.

As to the first question: (Normal Disclaimer: I am not an accountant but have used the program for years, and logically this suggested procedure keeps everything in balance, with a good audit trail. I also suggest making a Powerchurch backup of the accounting files so you can back out of any changes if the suggested procedure does not come out the way you think it should).

Here's how you should have done it, also all of these accounts (Petty Cash, Gift Cards and Gift Card Fees) should all close to the unrestricted net assets fund balance/equity/assets account (usually 01-3110-000)

1. Cash to buy gifts:
In Accounts Payable - write the check to petty cash out here. Yes, you will have write it out to cash.
Credit Checking - Debit Petty Cash
2. Receiving the gifts
In Funds Accounting - enter the following transaction
Credit Petty Cash for the final amount total - Debit Gift Cards - Debit Gift Card Fees
(Example: Total Cost $100 - fees $10: CR 100 Petty Cash, DB- cards 90 DB - Fees 10)

What this does is basically keep the cards as an unrestricted asset, which they are until given away.

3. Issuing the gifts
In Payroll - add the new Income Item Description there and select the Gift Cards Expense account there. Add the pay item to the
employee's list of pay items, and leave the amount blank. You can enter the amount when you process payroll.
Process payroll as normal, and then POST PAYROLL.
In Funds Accounting, find the Payroll transaction, and ADD a line to CREDIT the Gift Card Asset for the amount of the gift card.

The gift card was already entered as an expense on the payroll transaction created when you ran payroll, then posted, so all you need to do is add the asset account to show that some funds are coming from a different account than checking.

As usual I suggest putting as much information about this in the transaction notes block.

[athomas]

Thank you Neil. To answer your question, it has already been determined to be a taxable gift. Actually a debit card for $100 given as extra incentive to a teacher.

I followed your instructions o.k. until I got to the point about "adding a line to credit the gift card asset for the amount of the gift card asset for the amount of the gift card". This made the transaction unbalanced and unable to save. What am I missing?

[NeilZ]

Thank you Neil. To answer your question, it has already been determined to be a taxable gift. Actually a debit card for $100 given as extra incentive to a teacher.

I followed your instructions o.k. until I got to the point about "adding a line to credit the gift card asset for the amount of the gift card asset for the amount of the gift card". This made the transaction unbalanced and unable to save. What am I missing?

I suspect the checking account line includes the amount of the gift card, and it should not. I just realized that when I wrote that I had not asked if you print checks from Payroll? If you do, you may have overpaid the employee by the amount of the check.

The reason the transaction was out of balance was that the checking account line included the amount of the gift card, am I right. I usually say to do a backup so you can get out of this, but if you already processed payroll, we're stuck.

I usually work these things out in my test system, and I didn't catch this there. Before we go any further, did you overpay the employee?

Fixing the other issue is moot at this point, since its all off if there was an overpayment.

[athomas]

Everything's fine. I was actually testing the transaction so had a backup. The transaction did not include regular payroll so it was only the debit card value which was increased to allow for the amount of taxes taken out so the individual would actually receive the debit card face amount. Yes to question about checking account line. Sometimes print from payroll and sometimes do direct deposit. In this instance, I printed and gave it a check no to correspond with partial serial number of card

[NeilZ]

Everything's fine. I was actually testing the transaction so had a backup. The transaction did not include regular payroll so it was only the debit card value which was increased to allow for the amount of taxes taken out so the individual would actually receive the debit card face amount. Yes to question about checking account line. Sometimes print from payroll and sometimes do direct deposit. In this instance, I printed and gave it a check no to correspond with partial serial number of card

OK ... whew ...

So ... test this.

1. Run normal salary, add the card. You're going to have to process it as normal, but use manual check for this employee, and you're going to have to write it out by hand. Print the paystub, you're going to need the final check amount.

2. Post payroll. Then in Funds Accounting adjust the Checking Account credit for the amount of the gift card you're giving. If $100.00, subtact that from the number. Add the card asset account and credit that account for the 100. The transaction should then be balanced. The extra amount for taxes will come out of the normal checking account, the expense for the taxes will come out of the card expense account.

3. Write the check for the final check amount as listed on the paystub, minus the $100 for the card. Adjust the paystub to reflect that final check amount by hand.

Next time ... think about giving a US Savings Bond ... no taxes on that

[athomas]

o.k. that works but will the debit card transaction always have to be issued as part of a salary check. Can the debit card be processed in payroll by itself.

[NeilZ]

o.k. that works but will the debit card transaction always have to be issued as part of a salary check. Can the debit card be processed in payroll by itself.

Yes, but you're going to have to figure out how you're going to cover the tax expense. You said you increased the amount of the card to cover the tax, what you're going to have to do is this:

1. When issuing the card, along with adding in the cost of the taxes, you're going to have to change the FITW and any local taxes for this transaction from the tax tables, to manual amount.

For instance, right now you have the FITW pay item setup to use the Federal Married Rate. You're going to have to change that to say <Manual Amount> and then enter the amount of FITW you calculated based on the value of the card. Same with SS/Medicare, state or local tax. This is done from the employee's record under the Maintain List of Employees.

Get all that settled first. Then process payroll for that employee, uncheck any income other than the card, and any employer liabilities such as insurance or retirement. Use a Manual Check and enter something like GiftCard for the number (it should work).

2. Once you have processes the pay, go back into the Maintain List of Employees, and revert the tax items to their respective tax tables.

3. Post Payroll.

4. In Fund Accounting, open Modify Unposted Transactions and change the payroll transaction to add the card asset and entering the cost of the card on that line, and remove the checking account from the transaction. The transaction would look something like this, using round numbers of 100 for the card, 5 for the taxes.
01-2215-000 FITW Liab CR 5.00
01-1210-000 Card Asset CR 100.00
01-5310-000 Card Expense DB 105.00

I'm assuming that the card expense will also be used to cover the taxes.

Does this help?

[athomas]

Certainly does help. I'm going to make a policy of no more debit cards etc, Too much involved, Just kidding, Thanks again.

[athomas]

One last clarification. On #4 in fund accounting, after removing the checking account, adding the asset account, it balances. Then adding the card expense makes it not balance. In addition to Federal, there are ss, medicare, state and employer taxes listed. I am under impression from tax information all these taxes had to be deducted and not just federal.

[NeilZ]

One last clarification. On #4 in fund accounting, after removing the checking account, adding the asset account, it balances. Then adding the card expense makes it not balance. In addition to Federal, there are ss, medicare, state and employer taxes listed. I am under impression from tax information all these taxes had to be deducted and not just federal.

OK .. first question:

If you added the Pay Item in payroll, you should have entered the card expense account there, thus it should already be in the transaction that comes from the Payroll. You needed add it again. Did you use the card expense in that pay item? What other expense account lines are you seeing?

Second:
Yes .. you will have all those other liabilities. I was not going to list them all in my example. Remember, that Employer SS & Medicare come from the employer SS & Medicare expense, and should not be added to the card expense.

The best way to do this is to
1: see what the program calculates for taxes in the Maintain List of Employees function. Uncheck any other income pay item, and leave the card income item. Enter the amount of the card (eg: $100) for that card income. Then if there are any optional payroll deductions such as for insurance, or retirement, uncheck that too. Make note of what the system calculates for each tax.

2. Total up all those taxes, add that to the original amount of the card (if 100, and taxes 20, the card amount is now 120). In all the tax items change from using the tax table, to a manual amount, and enter the amount of each calculated tax found in step 1 above. The remaining 'check' should be the amount of the card, $100 in my example. This is also the amount you should see after posting payroll as being shown under the 'Checking Account'.

You may have been joking about not using debit cards in future, but frankly, its more work to do it that way. If its going to be taxable anyway, just include a bonus line and include the money in a check. In either case, the funds will be spent by the employee the way they wish anyway.

[athomas]

I may have finally got it. Want to send you a screen print. Have it cut but it wont paste to this sheet. Apparently it can be done as I've seen other transaction prints in forum. Do you know how to do?

[NeilZ]

I may have finally got it. Want to send you a screen print. Have it cut but it wont paste to this sheet. Apparently it can be done as I've seen other transaction prints in forum. Do you know how to do?

When I do it I post it to my website and link ...
When I get it I'm going to edit this to remove the email.

[athomas]

got message that address not recognized

[NeilZ]

got message that address not recognized

you did remove the AT and replace it with @ ??

Just checking .. but that is a good address.