A QuickBooks Payroll Tip for creating a more functional Payroll Liabilities section on your Chart of Accounts.
QuickBooks, by default, provides a limited Payroll Chart of Accounts containing only two accounts – Payroll Liabilities and Payroll Expenses. When you run a Balance Sheet or a Profit & Loss Report (or look at your Chart of Accounts listing) you only see the totals with no details and have to run further reports to find the individual amounts that make up the totals. I find this to be problematic.
This article will show you how to add sub-accounts to the standard Payroll Liabilities account so that you can quickly and easily “see” the individual amounts for each payroll liability and how to edit your existing payroll items to accurately point to these new accounts. A little extra work up front will provide you with a very function Payroll Liabilities section on your Chart of Accounts.
Step 1 – Determine the required Payroll Liability Sub-Accounts
Open your Payroll Items List {Lists menu -> Payroll Items} and scroll to the bottom, and pay close attention to the items that are currently pointing to or assigned to Payroll Liabilities.
Right click on the image to enlarge it
NOTE: You may want to customize the columns that are displayed in this list. To do so, right-click the Liability Account heading -> choose customize columns -> from the available columns list click on Expense Account -> the Add button -> Liability Account -> the Add button -> Payable To -> and the Add button. Click Ok. This will provide you a more detailed and functional Payroll Item List to work with, as shown in the screenshot above.
From this list, we will determine what we need to add to our Chart of Accounts to make it more functional. We will be adding sub-accounts for:
- Federal Unemployment {FUTA}
- Federal Withholding {FWH}
- Medicare {M-CARE}
- Social Security {FICA}
- State Withholding {STWH}
- State Disability {SDI}
- State Unemployment {SUI}
- Employee Training Tax (ESD}
Step 2 – Create Payroll Liability Sub-Accounts
Once you have the list of items that we will be adding as sub-accounts to the main Payroll Liabilities account; go to your Chart of Accounts {Lists menu -> Chart of Accounts}.
- Click the Account button {at the lower left corner of this window} -> choose New -> click the radio button next to Other Account Types and from the drop down menu choose Other Current Liability -> click the Continue button
Right click on the image to elarge it.
- In the Account Name, type in Federal Unemployment -> click the box next to Subaccount of and then from the drop down menu choose Payroll Liabilities. Add other details as required or necessary.
Right click on the image to enlarge it
- Click the Save & New button to create the other items from your list.
NOTE: Create a single account for Social Security and Medicare.
Step 3 – Edit existing payroll items mapping them to the new accounts
Going back to your Payroll Item List, edit each item assigning them to the newly created sub-accounts.
- Click on the Federal Unemployment payroll item -> click the Payroll Item button -> choose Edit -> click the Next button -> from the Liability Account drop down menu -> choose Federal Unemployment
Right click on the image to enlarge it
- Click the Next button until you get to the last window then select Finish.
NOTE: You may receive an Update transactions with new account window, here you can choose to update all existing transactions OR update transactions starting on a specific date. My personal preference would be to update all existing transactions – you may want to consult your accountant about this.
Right click on the image to enlarge it.
When you have finished mapping the items to your new sub-accounts; simply opening and viewing your Chart of Accounts will provide you with a detailed account of each of your payroll liabilities, as well as the grand total.
On Wednesday, we’ll provide instructions for making the Payroll Expenses section of your Chart of Accounts provide more information on Profit & Loss Reports.
The “List” is another basic QuickBooks feature. You will fill out most QuickBooks forms by selecting entries from a list. Lists save you time and help you enter your information consistently and correctly.
QuickBooks Lists are the backbone of the entire process of keeping your books. Each and every transaction that you enter in QuickBooks will work with multiple lists in order to provide you with job costing and accounting functions.
You will find yourself always using these standard lists:
- Chart of Accounts
- Item (Cost Code)
- Fixed Asset
- Price Level
- Billing Rate Level
- Sales Tax Code
- Payroll Item
- Class
- Workers Comp Code
- Other Names
When you select any of these Lists, they display various information, arranged in columns. Did you know that these columns can be customized to display additional information that would be valuable to you and your company?
A good example of customizing information that is displayed in the Chart of Accounts List would be to automatically know, just by looking at the Chart of Accounts, which accounts had been flagged as being 1099 accounts – without having to go into the 1099 Preference and determining which accounts had been selected.
To display a 1099 flag in your Chart of Accounts, you would:
- From the Lists menu
- Choose Chart of Accounts
- Click the Account button at the bottom of the window
Right click on the image to enlarge it.
- Choose Customize Columns
Right click image to enlarge it.
- This displays a Customize Columns – Chart of Accounts window which displays a list of Available columns on the left and Chosen columns on the right. Click on the 1099 Account option to select it, then click the Add button.
Right click image to enlarge it.
- The 1099 Account option is now displayed in the Chosen Columns on the right. Click Ok to save your changes.
Right click image to enlarge it.
- Now, when you display your Chart of Accounts List, any accounts that have been selected for 1099 reporting will be flagged and display the type of 1099 required.
Righ click image to enlarge it.
Customizing the columns displayed in the Chart of Accounts listing to display 1099 flag provides a productivity boost all year long – not just at year end.
Go ahead and experiment with the information displayed in various lists by selecting available columns on the left and adding them to chosen columns on the right.
Simple customization such as this will help you get more done in less time – because you don’t have to constantly search for information.
Setting up or modifying an existing Chart of Accounts is not an overwhelming task in QuickBooks.
If you are new to QuickBooks, when you create your company file (File menu -> New Company), the EasyStep Interview provides you with a “wizard”, industry specific templates, and example accounts are even suggested. If you need a starting point, grab your tax return or financial statement compiled by your outside accountant, and enter the accounts you find there, turning summary accounts from the financial statements into subaccounts in QuickBooks.
If you have already started using QuickBooks you can easily add, edit, or merge accounts in your Chart of Accounts for your business with a matter of a few clicks of your mouse by selecting the Lists menu -> Chart of Accounts OR Company menu -> Chart of Accounts.
By creating a more organized and efficient chart of accounts, you will not only save on accounting fees but you will improve your in-house reporting as well.
Always BACKUP your company’s QuickBooks file before making ANY changes (File menu -> Save Copy or Backup) – just in case, you wish to reverse the process.
Adding accounts:
To add an account, click the Account button at the bottom of the Chart of Accounts list and choose New. QuickBooks prompts you to choose what type of account you want to create – Income, Expense, Fixed Asset, Bank, Loan, Credit Card, Equity, Accounts Receivable, Other Current Asset, Other Asset, Accounts Payable, Other Current Liability, Long Term Liability, Cost of Goods Sold, Other Income, or Other Expense. As you select an account type to create, QuickBooks even includes a suggestion box on the right-hand side of the window, listing common accounts under each account type.
Right click on the image to enlarge it
Editing accounts:
To change an account name or type, right click on the account that you wish to work with and choose Edit Account, and simply type in the new name or select a different account type.
Merging accounts:
If you have duplicate accounts, Edit the duplicate, and in Account Name, enter the name of the account you wish to keep; all of the information in the previously separate accounts become merged into the one remaining account. As a precaution, before merging accounts, it would be prudent to make a copy of your QuickBooks file in the event that you discovered later that a merge was inappropriate.
Creating subaccounts:
Subaccounts are a critical feature of structuring your Chart of Accounts and ultimately your reports in QuickBooks. For example, on a tax return, rather than report separate totals for electricity, natural gas, and water, it is more efficient to combine their amounts under a heading, “utilities”. It is also true for the various kinds of insurance, professional services, taxes, etc. By grouping such related accounts in QuickBooks, its reports appear more organized and readable, especially since QuickBooks provides subtotals for each grouping.
Creating a subaccount is easy in QuickBooks. Go to the Lists menu -> Chart of Accounts OR Company menu -> Chart of Accounts, highlight the account that you want to turn into a subaccount, click the Account button -> choose Edit Account, click “Subaccount of” and select its parent account.
Note – Accounts may be added to or deleted from the chart of accounts at any time, but an account cannot be deleted once a transaction has been posted to it. Consequently, ensure the chart of accounts is complete and unnecessary accounts have been deleted or merged with another account before recording any transactions.
Account Numbers:
You are allowed up to 7 digits for an account number in QuickBooks; a minimum of 5 is recommended if you require numerous accounts and subaccounts. Unfortunately, QuickBooks preconfigured their numbering system using 4 digit – which is rather limiting. I often use, and recommend, a 5-digit account numbering system for construction companies:
10000 – 19999: Assets
10000 – 14999: Current Assets
- 10000 – 10999: Cash
- 11000 – 11999: Receivables
- 12000 – 12999: Inventory
- 13000 – 14999: Other Current Assets
15000 – 19999: Noncurrent Assets
- 15000 – 15999 – Fixed Assets
- 16000 – 19999 – Other Assets
20000 – 29999: Liabilities
20000 – 25999: Current Liabilities
- 20000 – 20499 – Accounts Payable
- 20500 – 20999 – Credit Cards
- 21000 – 25999 – Other Current Liabilities
- 21000 – 21999 – Accrued Expenses
- 22000 – 22999 – Payroll Liabilities
- 23000 – 23999 – Debt, Current Portion
- 24000 – 24999 – Capitalized Leases, Current Portion
- 25000 – 25999 – Other
26000 – 29999: Noncurrent Liabilities
- 26000 – 26999 – Debt, Noncurrent Portion
- 27000 – 27999 – Capitalized Leases, Noncurrent Portion
- 28000 – 29999 – Other
30000 – 39999: Equity
- 30000 – 30999 – Capital Stock
- 39000 – 39999 – Retained Earnings
Revenue: 40000 – 49999
50000 – 59999: Cost of Goods Sold
- 50000 – 50999 – Materials
- 51000 – 51999 – Labor
- 52000 – 52999 – Subcontractors
- 53000 – 53999 – Equipment
- 54000 – 59999 – Other Direct Costs
60000 – 89999: Expenses
- 60000 – 69999 – Selling Expenses
- 70000 – 89999 – General and Administrative Expenses
90000 – 99999: Other Income (Expenses)
Of course, there could be an endless variety of accounts under all of the above categories particularly under Expenses: Selling as well as General and Administrative. If there were an insufficient number of accounts required under Selling, you may omit the distinction and lump all under Expenses. If you apply overhead to your jobs reported in Cost of Goods Sold later than posting, you may even wish to add an Overhead grouping under Expenses for those amounts to be allocated to jobs. I find this especially convenient and timesaving, alleviating a frantic search through a mass of expense accounts containing thousands of transactions.
