How do you record unpaid year end payroll liabilities at the end of the year. I always thought even in a cash environment that you needed to balance the expensed gross payroll reported to the 940 & W3 amounts. If that isn't correct, what do you do with the liability?
Sales tax, payroll tax, and credit card liabilities are all on your books at year end - whether cash or accrual basis.
Payroll is expensed on the actual check date. Unless your payroll taxes are impounded, you will have a payroll tax liability on your books at year end. If you are cash basis, you will not have accrued payroll on your books.
It is only the accounts payable/accounts receivable numbers that are 'reversed' for cash basis accounting.
This is my understanding. . .
Laura D
What do you mean by "reversing" accounts payable/accounts receivable? On the cash basis balance sheet - accounts payable (including sales tax payable & payroll tax payable) - shows up on the liabilities/equity side of equation.
As far as Accounts receivable - shouldn't Quickbooks know to take this out of net income instead of including this on a cash basis balance sheet?
Just to clarify. ..
In QuickBooks, there are different types of liability accounts - accounts payable type, credit card type, and current liability type (for sales tax, payroll tax and short term loans) and long term liability type (for note balances not expected to be paid off in the ensuing year).
Accounts payable should be used for entering bills for purchases and services,
b not
for entering bills for liabilities like credit cards, sales tax, payroll tax, or for loan payments.
When you use the accounts payable for those types of 'bills' in QuickBooks, they will still show up on a cash basis report, but, instead of under 'current liabilities' as your accountant wants to see them, they remain under Accounts Payable, which isn't acceptable on a cash basis report.
As for Accounts Receivable, if you are entering Invoices (using items which point to your income account) any Open Invoices will not show up on your Cash basis report. If you have any amount in Accounts Receivable on a cash basis, you might have unapplied credits or prepayments from a customer. . or, perhaps, another issue. . .
The CPAs I work with prefer to keep the reports on an accrual basis and (manually) back out the a/p and a/r numbers for tax purposes.
Does this help?
Laura D
Thanks for the helpful advice. So should I include Accounts payable on my tax return balance sheet? If I don't include it - it won't balance. So should I edit the name of Accounts Payable to "current liabilities" then? Unfortunately - my accounts receivable is negative on the cash basis balance sheet but postive & correct on the accrual basis balance sheet.
Shouldn't Accounts payable adjust the COGS acount?
I guess my question was not clear. I expensed the gross payroll that balanced with the Gross payroll reported on the W3 and 940. A portion of that remained unpaid as of 12/31. The offset was reported as a payroll liability on the balance sheet. The company on is a cash basis. Do I need to back out the liability from the expense or is it ok to reduce taxable income by the unpaid portion of payroll taxes?
Neither. . even though you are on cash basis, you will have a current liability account called Payroll Tax Liabilities as of year end.
Laura D
What is the other side of the double entry....payroll liability credit....where is the debit?
If your payroll entry was set up properly, you would have payroll tax liabilities on your books.
Debit>gross wages
Debit>employer expense
Credit>Payroll tax liabilities, which is the total of withholdings plus er expense
Credit>Net payroll (checking or accrued payroll, depending on how you enter your net checks)
If you still don't understand, I suggest that you hire someone to look at your file and correct the payroll accounts for year end and set you up with procedures for 2008.
Feel free to e-mail me at the address on my profile, if this is something you are interested in.
Hope this helps,
Laura D
I have a question also, but first some background info.
I use assisted payroll and report taxes using cash-basis method. My first payroll date in 2008 was January 2nd with a payroll period ending December 31, 2007. The payroll was submitted on December 31st.
When I ran my Balance Sheet under Cash Basis for 2007, what I noticed was that QB made an entry for the Accrued Payroll Liabilities, Direct Deposit Deposit Liabilities and Accrued Payroll Taxes. Also I noticed that on the Income Statement under Cash Basis for 2007, QB did not make entries there.
I'm trying to understand how this happened and what I can do to prevent it from happening. My CPA does not like to see any other types of Liabilities on the Balance Sheet at year end for anything other than Credit Cards, Loans and other Long Term Debts.
Thanks for your response. Everything was being recorded properly. I just wondered if it had to be reversed for income tax reporting purposes. We did report the accrued but unpaid taxes as our CPA confirmed that is how it should be done.
....."Income Statement under Cash Basis for 2007, QB did not make entries there."
I think the reason QB did not post any entries on your Income Statement for the last payroll was because the check date was Jan 02, 2008, and that is when the company "recognized" the expense. Even if there is a processed date, the check date is what drives the expenses and liabilities.
CDX
I have an IRS auditor that is disallowing the Accrued Employer Payroll Taxes at yearend for a Cash Basis Taxpayer. It has been my understanding from here and elsewhere that this was allowed. What is my authority for doing so?
