QuickBooks for Contractors blog

QuickBooks, by default, offers a single account called Payroll Expenses in your Chart of Accounts and all of the pre-programmed Payroll Items for wages and taxes are assigned to that one single account. When a business owner runs a Profit & Loss Report, when QuickBooks is set up in this manner, the report doesn’t really provide him with any real idea of how much he paid in wages vs. taxes because it’s all just lumped together in a single amount.

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I find this to be very frustrating because it means that you have to run additional reports and perform additional calculations in order to determine very basic information.

Previously, we covered creating a more functional Payroll Liabilities section on your Chart of Accounts, so that you could quickly and easily see not only the total of your payroll liabilities; but also the individual amounts that you owed for each specific payroll liability at a glance.

Today, we are going to discuss creating a more meaningful Payroll Expenses section, so that you can see how much you paid in wages vs. taxes; without having to run additional reports or perform additional calculations.

Before we begin to get to work, I will recommend that you contact your accountant or tax preparer before you start this process, they may want to help you to take this one step further – such as dividing wages and taxes between Cost of Goods Sold for your field workers and Payroll Expenses for your in-house office staff, which we are not going to cover in this post.

NOTE: Always make a backup of your QuickBooks file before making any changes to your file!

Step 1 – Determine What New Accounts to Create in Your Chart of Accounts

Start by looking at your current Payroll Item List {Lists menu –> Payroll Item List} to see how things are currently setup and to plan how you want to set up the Payroll Expenses section of your Chart of Accounts.

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From this list, we can see that we have Salary and Hourly Wage items, bonuses, Worker’s Compensation, and taxes – perhaps we want our Payroll Expenses section to contain Sub-Items for:

• Salary
• Wages
• Bonuses
• Vacation
• Sick
• Taxes

• Federal Unemployment {FUTA}
• Medicare Company {M-CARE}
• Social Security Company {FICA}
• State Unemployment {SUI}
• Employee Training Tax

• Workers Compensation

Step 2 – Create New Sub-Accounts of Payroll Expenses

The first thing we want to do is add Sub-Accounts to our Payroll Expenses section for Salary, Wages, Bonuses, Vacation, Sick, Taxes & Workers Compensation. To do this:

• from the Lists menu –> choose Chart of Accounts –> click the Account button at the lower left corner –> choose New –> click into the radio button next to Expenses and then click the Continue button.

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• In the Account Name field, type in Salary
• Click into the box in front of Sub-account of, to select it, and then from the drop down list choose Payroll Expenses. Click the Save & New button.

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• Create sub-accounts for Wages, Bonuses, Vacation, Sick, Taxes & Workers Compensation.

Step 3 – Create Sub-Accounts for Taxes

Once you have the Sub-Account created for Taxes, next you create additional sub-accounts to track specific payroll taxes that your company pays; Federal Unemployment, Medicare, Social Security, State Unemployment, and Employee Training Tax. To do this:

• from the Lists menu –> choose Chart of Accounts –> click the Account button at the lower left corner –> choose New –> click into the radio button next to Expenses and then click the Continue button.
• In the Account Name field, type in Federal Unemployment
• Click into the box in front of Subaccount of, to select it, and then from the drop down list choose the Taxes subaccount below Payroll Expenses.

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• Click the Save & New button
• Create accounts for Medicare, Social Security, State Unemployment, and Employee Training Tax.
• Click Save & Close when you finish creating the last account.

When you are finished, your Chart of Accounts Payroll Expenses section should look similar to the screenshot below:

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Step 4 – Map Existing Payroll Items to the New Payroll Expense accounts

Go back to your Payroll Item List {Lists menu –> Payroll Items List} and beginning with the first item in the list, edit it {usually double-clicking on the item will open the Edit window}, click the Next button until you reach the Expense Account window and then from the dropdown menu, select the correct Payroll Expenses sub-account. For example, I chose to edit the Salary – Designer item and then chose the Salary sub-account of Payroll Expenses. See the screen shot below.

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When you have finished, review the Expense Account column in the Payroll Item List to make sure that you have accurately assigned your payroll items to the proper sub-accounts. Do not skip this step!

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Your more detailed Profit & Loss Payroll Expenses section

Now when you run a Profit & Loss Report, you can easily see the details that make up your total payroll expenses without having to drill down or run additional reports and perform additional calculations.

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A note to accounting professionals. I realize that many of you don’t want to see all of the details that your clients may want and/or need to see when you run the same reports – don’t forget that QuickBooks provides a Collapse button at the top of the Profit & Loss as well as the Balance Sheet Report which allows you to see just the totals for the main or parent accounts in these reports.

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We hope that you find this post – and other related posts; to be helpful.