How to Allocate Payroll Taxes in QuickBooks

By Ruth Perryman, eHow User

New payroll items are mapped to an expense account in QuickBooks called Payroll Expenses, but you can edit your payroll items so they post to any expense account you wish. However, each payroll item can only be mapped to one expense account which causes problems when you want to allocate field labor to cost of goods sold and admin labor as a regular expense. You can get around this by establishing two payroll items for each of your payroll expenses - one mapped to a cost of goods sold account, another mapped to a payroll expense account - with one important exception, payroll taxes. Because QuickBooks requires that you use one payroll item for each federal and state tax, you are forced to choose between mapping your payroll taxes to an expense account and understate Cost of Goods Sold or a Cost of Goods Sold Account and understate Payroll Expenses. Many QuickBooks consultants recommend that you prepare a journal entry each month to move your payroll taxes into the correct category. But there is a way to automate this.
Difficulty:

Moderately Easy

Instructions
1. o

1
If you haven't already, create payroll tax accounts under cost of goods sold and expenses. Go to Lists > Chart of Accounts, click on the Accounts button, and select New. The cost of goods sold type is one of the Other Account Types. You may want to create sub-accounts for each payroll tax. You can do this by creating a parent account called Payroll Taxes, checking the box next to Subaccount of, and entering in the Payroll Tax account when creating the sub-accounts. Note: the sub-account types must match the parent account selected.

2
Go to Lists > Payroll Item List and edit your payroll tax items to map to the Cost of Goods Sold payroll accounts you created above.

3
Click on the Payroll Item button and select New. Create an Addition payroll item called "Allocated Admin Payroll Taxes". Select EZ Setup, Other Additions, and map it to your regular payroll tax expense account. Don't change any of the other defaults until you get to Gross vs. Net. Change this to gross pay. You can enter an estimated % for payroll taxes (make sure to enter the % after it) or if you want really accurate job costing you may want to create separate payroll items for each tax so you can set the % and upper limits for each one. Just don't forget to adjust the upper limits each year.

4
Create a Deduction payroll item called "Admin Payroll Allocated to Admin". Follow the same steps as you did when creating the Addition payroll items, except select Other Deductions as the account type and map it to your cost of goods sold payroll tax account.

Add the addition and deduction items to each admin employee's Payroll and Compensation Info tab. Note: you must enter the deduction payroll item on top of the addition payroll item, or you will change the amount of net pay.
o

6
When you create paychecks for these employee in the future, the addition payroll item will increase regular payroll expense, and the deduction payroll item will decrease cost of goods sold by the same amount. You can also edit prior paychecks by unlocking them. Just make sure that the deduction item is ALWAYS listed first.

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Assigning Payroll Costs to Different Accounts

By: Diane Gilson
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Q: The only account that I see in QuickBooks for payroll costs is called Payroll Expense, which is in the Expense account type. But Id like to assign my payroll costs to different accounts. For example, Id like Field Labor payroll costs to show up in a cost of goods sold account, but Admin and Owner (and maybe, someday, Sales) payroll costs into separate expense accounts. Can I do that in QuickBooks? A: Yes, you certainly can -- and I encourage all of my construction clients who have employees to do the following (conceptual steps follow): The Payroll Expense account that you are describing is the initial, default account that QuickBooks provides when you first set up your chart of accounts. If you are a construction company that wants to include direct labor costs in your production costs (so that you can measure the correct gross profit results for your company), just inactivate the default account and do the following: For gross compensation:

1. Create new accounts for each of the specific kinds of payroll compensation that you want to track. As you add each account, select the type of account that you want to create. So you will choose a Cost of Goods Sold account type for your direct (field) labor, and Expense Accounts for each of the other types of compensation that you want to track (e.g., sales compensation, admin compensation, owner compensation). 2. If you use the QuickBooks payroll module, you will then create new detailed payroll items that link back to the correct accounts. As an example, for direct-labor employee compensation, set up a series of payroll Items that look something like this: D/L-regular compensation D/L-overtime D/L-holiday D/L-vacation, etc. (Do this for each additional kind of payroll.) As a part of the process, tell QuickBooks to assign each of these payroll items to the direct labor-payroll tax account. Then repeat this process for your sales, admin, and owner payroll Items. For payroll taxes: 1. After you have created the detailed compensation accounts and payroll Items, you will then need to return to your chart of accounts and establish new payroll tax accounts to accompany the compensation accounts. That is, Direct Labor-Payroll Tax (COGS), Sales-Payroll Tax (expense), Admin-Payroll Tax (expense), and so forth. 2. Then you will need to modify your existing payroll tax Items. QuickBooks will allow you to assign the cost for each tax to only one account. To facilitate the assignment of payroll tax costs back into jobs, link thecost side of payroll tax items to the Direct Labor-Payroll Tax (COGS) account that you just established. 3. You will then need to make a simple monthly journal entry to move the sales, admin, and owner payroll taxes into the correct expense accounts, and all will be accurate!

--Diane Gilson (dcg@infoplusacct.com) created the accounting firm of Info Plus(+) Accounting in 1994 with the intent of providing current and future-oriented management accounting services to small and medium-sized businesses. Since the firms inception, Diane has worked exclusively in QuickBooks a powerful, flexible, multi-functional software accounting system currently used by 70-85% of small to medium-sized businesses in the United States. She is a Certified QuickBooks Advanced Professional Advisor and Certified QuickBooks Enterprise ProAdvisor (through Intuit), and a Certified QuickBooks consultant (through the Sleeter Group Consultants Network).

Accounting > Chart of Accounts

Chart of Accounts

The chart of accounts is a listing of all the accounts in the general ledger, each account accompanied by a reference number. To set up a chart of accounts, one first needs to define the various accounts to be used by the business. Each account should have a number to identify it. For very small businesses, three digits may suffice for the account number, though more digits are highly desirable in order to allow for new accounts to be added as the business grows. With more digits, new accounts can be added while maintaining the logical order. Complex businesses may have thousands of accounts and require longer account reference numbers. It is worthwhile to put thought into assigning the account numbers in a logical way, and to follow any specific industry standards. An example of how the digits might be coded is shown in this list:

Account Numbering
1000 2000 3000 4000 5000 6000 7000 8000 1999: 2999: 3999: 4999: 5999: 6999: 7999: 8999: asset accounts liability accounts equity accounts revenue accounts cost of goods sold expense accounts other revenue (for example, interest income) other expense (for example, income taxes)

By separating each account by several numbers, many new accounts can be added between any two while maintaining the logical order.

Defining Accounts
Different types of businesses will have different accounts. For example, to report the cost of goods sold a manufacturing business will have accounts for its various manufacturing costs whereas a retailer will have accounts for the purchase of its stock merchandise. Many industry associations publish recommended charts of accounts for their respective industries in order to establish a consistent standard of comparison among firms in their industry. Accounting software packages often come with a selection of predefined account charts for various types of businesses. There is a trade-off between simplicity and the ability to make historical comparisons. Initially keeping the number of accounts to a minimum has the advantage of making the accounting system simple. Starting with a small number of accounts, as certain accounts acquired significant balances they would be split into smaller, more specific accounts. However, following this strategy makes it more difficult to generate consistent historical comparisons. For example, if the accounting system is set up with a miscellaneous expense account that later is broken into more detailed accounts, it then would be difficult to compare those detailed expenses with past expenses of the same type. In this respect, there is an advantage in organizing the chart of accounts with a higher initial level of detail. Some accounts must be included due to tax reporting requirements. For example, in the U.S. the IRS requires that travel, entertainment, advertising, and several other expenses be tracked in individual accounts. One should check the appropriate tax regulations and generate a complete list of such required accounts.

Other accounts should be set up according to vendor. If the business has more than one checking account, for example, the chart of accounts might include an account for each of them.

Account Order
Balance sheet accounts tend to follow a standard that lists the most liquid assets first. Revenue and expense accounts tend to follow the standard of first listing the items most closely related to the operations of the business. For example, sales would be listed before non-operating income. In some cases, part or all of the expense accounts simply are listed in alphabetical order.

Sample Chart of Accounts

The following is an example of some of the accounts that might be included in a chart of accounts.

Sample Chart of Accounts Asset Accounts

Current Assets

1000 1010 1020 1030 1040 1050 1060 1070 1100 1140

Petty Cash Cash on Hand (e.g. in cash registers) Regular Checking Account Payroll Checking Account Savings Account Special Account Investments - Money Market Investments - Certificates of Deposit Accounts Receivable Other Receivables

1150 1200 1205 1210 1215 1220 1230 1400 1410 1420 1430 1470

Allowance for Doubtful Accounts Raw Materials Inventory Supplies Inventory Work in Progress Inventory Finished Goods Inventory - Product #1 Finished Goods Inventory - Product #2 Finished Goods Inventory - Product #3 Prepaid Expenses Employee Advances Notes Receivable - Current Prepaid Interest Other Current Assets

Fixed Assets

1500 1510 1520 1530 1540 1550 1560

Furniture and Fixtures Equipment Vehicles Other Depreciable Property Leasehold Improvements Buildings Building Improvements

1690 1700 1710 1720 1730 1740 1750 1760

Land Accumulated Depreciation, Furniture and Fixtures Accumulated Depreciation, Equipment Accumulated Depreciation, Vehicles Accumulated Depreciation, Other Accumulated Depreciation, Leasehold Accumulated Depreciation, Buildings Accumulated Depreciation, Building Improvements

Other Assets

1900 1910 1915 1920 1990

Deposits Organization Costs Accumulated Amortization, Organization Costs Notes Receivable, Non-current Other Non-current Assets

Liability Accounts
Current Liabilities

2000 2300 2310

Accounts Payable Accrued Expenses Sales Tax Payable

2320 2330 2335 2340 2350 2360 2370 2380 2390 2400 2410 2420 2440 2480

Wages Payable 401-K Deductions Payable Health Insurance Payable Federal Payroll Taxes Payable FUTA Tax Payable State Payroll Taxes Payable SUTA Payable Local Payroll Taxes Payable Income Taxes Payable Other Taxes Payable Employee Benefits Payable Current Portion of Long-term Debt Deposits from Customers Other Current Liabilities

Long-term Liabilities

2700 2702 2704 2706 2708

Notes Payable Land Payable Equipment Payable Vehicles Payable Bank Loans Payable

2710 2740

Deferred Revenue Other Long-term Liabilities

Equity Accounts 3010 3020 3030 Stated Capital Capital Surplus Retained Earnings

Revenue Accounts 4000 4020 4040 4060 4080 4540 4550 4800 4900 Product #1 Sales Product #2 Sales Product #3 Sales Interest Income Other Income Finance Charge Income Shipping Charges Reimbursed Sales Returns and Allowances Sales Discounts

Cost of Goods Sold 5000 5010 5020 Product #1 Cost Product #2 Cost Product #3 Cost

5050 5100 5150 5200 5250 5300 5700 5730 5750 5800 5850 5900 5950

Raw Material Purchases Direct Labor Costs Indirect Labor Costs Heat and Power Commissions Miscellaneous Factory Costs Cost of Goods Sold, Salaries and Wages Cost of Goods Sold, Contract Labor Cost of Goods Sold, Freight Cost of Goods Sold, Other Inventory Adjustments Purchase Returns and Allowances Purchase Discounts

Expenses 6000 6010 6050 6100 6150 6200 6250 Default Purchase Expense Advertising Expense Amortization Expense Auto Expenses Bad Debt Expense Bank Fees Cash Over and Short

6300 6350 6400 6450 6500 6510 6520 6530 6550 6600 6650 6660 6670 6700 6710 6750 6800 6850 6900 6950 7000

Charitable Contributions Expense Commissions and Fees Expense Depreciation Expense Dues and Subscriptions Expense Employee Benefit Expense, Health Insurance Employee Benefit Expense, Pension Plans Employee Benefit Expense, Profit Sharing Plan Employee Benefit Expense, Other Freight Expense Gifts Expense Income Tax Expense, Federal Income Tax Expense, State Income Tax Expense, Local Insurance Expense, Product Liability Insurance Expense, Vehicle Interest Expense Laundry and Dry Cleaning Expense Legal and Professional Expense Licenses Expense Loss on NSF Checks Maintenance Expense

7050 7100 7200 7250 7300 7350 7400 7450 7460 7550 7600 7620 7650 7700 7750 7800 8900 9000

Meals and Entertainment Expense Office Expense Payroll Tax Expense Penalties and Fines Expense Other Taxes Postage Expense Rent or Lease Expense Repair and Maintenance Expense, Office Repair and Maintenance Expense, Vehicle Supplies Expense, Office Telephone Expense Training Expense Travel Expense Salaries Expense, Officers Wages Expense Utilities Expense Other Expense Gain/Loss on Sale of Assets

Accounting > Chart of Accounts

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