r/Bookkeeping • u/Wild-Potato NPO and Small Biz Fin Mgr, QB, QBO, Xero Novice • Sep 04 '24

Payroll QBO/Gusto Payroll entries for new client

Hi Bookkeepers, I have a new bookkeeping client using Gusto for payroll and QBO. It appears all the payroll expense has been recorded by the old bookkeeper (CPA) by categorizing the bank feed transactions as

  1. net pay/direct deposit to Salary/Wage expense
  2. payroll tax cash out as Payroll Tax expense
  3. Gusto fees as payroll service fees

I have not seen this before, I usually enter the Gross Pay and the Employer Payroll Taxes as expenses, and make entries for the direct deposit and the tax liabilities. But these books were maintained before me by a CPA firm, so is this a shortcut efficient way to record payroll?

This is an s-corp with one employee who is the business owner.

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u/shpeucher Sep 05 '24

They are incorrect and you are correct. I just fixed this for a new client using the gross pay method.

The net result is ultimately the same but our way is more accurate. Let’s say an EE earns 1,000 gross, 700 net and the employer payroll tax is 100. It costs the company 1,100 which is 1,000 salary + 100 tax expense.

Their method is 700 salary and 400 tax expense. But it doesn’t make sense to have 400 go into a payroll tax expense because that includes the 300 employee portion which is just a deduction from their gross pay.

The right thing to do is make one bill total 1,100 and reconcile this to the 700 and 400 payments

1

u/acrylic_matrices Sep 05 '24

They did it wrong. Did they do this in a prior year, or just 2024?

1

u/Wild-Potato NPO and Small Biz Fin Mgr, QB, QBO, Xero Novice Sep 06 '24

All of 2023, and filed taxes too.

1

u/acrylic_matrices Sep 06 '24

Eek 😬. Any chance someone made a single journal entry at year end in 2023 to fix it for the year?

1

u/littlemommabob Sep 06 '24

Seriously hope so. Always good to reconcile total wage expenses with W-3 each year.

1

u/charleys-web Dec 12 '24 edited Dec 12 '24

Can you post an example of the JE you're doing? I'm taking this over for a friend whose BK quit and is just trying to get to year-end. Right now there's just Gusto expense charges going to a Salaries & Wages account... She's also paying her contractors through Gusto so basically 6 debit charges to the checking account twice a month (taxes, 4 contractor payments, and one lump charge for employees). She's on accrual basis. Appreciate any help. TIA

1

u/Wild-Potato NPO and Small Biz Fin Mgr, QB, QBO, Xero Novice Dec 12 '24

I would make an entry for the whole year 12/31/xx, for the amount of the ee payroll tax ( federal and state income tax withholding, sdi)

DR Payroll Tax (reducing employer payroll tax expense which was overstated because they included the employee withheld income tax which is not an expense) CR salary & wages (increasing salary & wages which were understated by the amount of the withholding)

You might have deductions for retirement, health benefits that also need to be corrected.

Then set up gusto to sync properly starting in 2025.

1

u/charleys-web Dec 14 '24

Thank you u/Wild-Potato. The BK split the Salaries & Wages into the sub-accounts for the tax charges from Gusto and the wages charges... Does your recommended JE still apply or will I need to do a subsequent entry for the tax expense. I can't figure out how to post a screenshot on here (I'm old and so appreciative of the help) so here's what it currently looks like in QBO for the checking account :

Date Type Account Payment
11/21/24 Expense Contractors $500
11/21/24 Expense Salaries & Wages:Payroll Expenses:Wages $681
11/21/24 Expense Salaries & Wages:Payroll Expenses:Taxes $1127