- quote -

I think you should consult with the accountant before you go
any further. When you cut a paycheck, you credit cash, debit
Wage expense, debit payroll taxes expense, and credit
payroll liabilities.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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"Adam DuV" <duvander[at]gmail.com> wrote:

- quote -

First, I'm curious what software you are using that you have
to actually make manual double entries? Most of the
software I've seen is mostly fully automated and will handle
these entries for you. To answer your question, though,
here's how most systems record it:

Debit Payroll Expense for the full amount of your GROSS pay
Debit Payroll Tax Expense for the Employer's portion of OASDI, MEDICARE,
FUTA, SUI and any other required items
Credit 941 Taxes payable for the FIT Withheld, EE OADSI, EE MEDICARE, ER
OASDI & ER MEDICARE
Credit State Withholding payable for SIT Withheld
Credit FUTA payable for FUTA due
Credit SUI payable for SUI due
Credit Cash/Checking for your net check

This produces the outstanding payroll liabilities which you
will pay periodically. When you pay the liabilities you
debit the liability and credit cash/checking.

Gene E. Utterback, EA

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Adam DuV wrote:

- quote -

If your business is a sole proprietorship, or a
single-member LLC that has not elected corporate tax
treatment (which is disregarded for tax purposes as an
entity separate from yourself), you are not its employee.
You are self-employed, and must make estimated tax payments
(nothing to withhold from) and pay the self-employment tax,
which comprises both the employee's and the employer's
Social Security and Medicare taxes.

If your business is a partnership, or a multiple-member LLC
that has not elected to be taxed as a corporation, again,
you are not its employee. You may receive a guaranteed
payment that is the functional equivalent of a salary (i.e.,
you withdraw a certain amount every two weeks), and will be
subtracted from the partnership's business income and
reported to you on a separate line on your Schedule K-1.
But it is not salary, and you must make estimated tax
payments and pay the self-employment tax.

If your business is a corporation, whether S or C, you are
its employee. To the corporation, your salary is an expense
and therefore is a debit, not a credit, in a double-entry
bookkeeping system. The entry to pay your salary would look
like this:

Debit salaries & wages for the gross amount, say $5,000
Credit federal and state income taxes payable for the amounts withheld
Credit FICA taxes payable for Social Security and Medicare taxes
withheld
Credit payable accounts for any other amounts required to be withheld
in your state or local jurisdiction, e.g., city income taxes, state
disability insurance
Credit cash for the balance, $5,000 minus the total amounts withheld,
which is the amount of the net check.

When the corporation pays the withheld taxes, debit the
payable accounts and credit cash.

Katie in San Diego
The foregoing is intended for educational purposes only and
does not constitute legal or professional advice.

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Adam DuV" <duvander[at]gmail.com> wrote:

- quote -

Depends on how fine you need it broken down. For a one-man
show, you probably don't need to break it down too finely.

Set up Tax Expense and Taxes Payable accounts. You can
divide these into individual types of tax if you want.

When you pay wages, you pay wages after withholding out of
cash. But you also create liabilities, taxes you must pay
when due, for withholding and employer-paid payroll taxes.

So when you run payroll, you create these entries:

Debit expense accounts (Wage Expense, Tax Expense, however
you break them down) for gross wages and payroll taxes. All
of these are expenses.

Credit payables accounts (Withholding Taxes Payable, Payroll
Taxes Payable, however you break them down) for all the
taxes.

Credit cash for net wages.

Then when you pay taxes over to the government, credit cash
for the payment and debit the taxes payable accounts.

--
Chris Green

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- quote -

First of all, this is an INCORPORATED business, correct?
Not a Sch C?

Helen, EA in PA
Director, NAEA; Immediate Past President, PSEA; Tax Expert, AOL
Enrolled Agents - THE Tax Professionals

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"Adam DuV" <duvander[at]gmail.com> writes:

- quote -

This really should go in alt.accounting, as it's not
a tax question.

You should set up liability accounts for something
like Employee Income Tax Withheld, Employee SS Withheld,
Company SS Contribution, Employee Medicare Withheld,
and Company Medicare Contribution.

On each payday, credit all those liability accounts
the appropriate amount, debiting the appropriate
payroll expense accounts (like Company SS Expense, etc).
If you credit Wages for gross wages, then debit Wages
for the employee withholdings. If you credit Wages for
net wages, then debit Wage Expenses for the employee
withholdings.

When you pay the IRS, debit the liability accounts and
credit Cash (just like paying any receivable).

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Greetings,

I run a business where I am my own employee. In an effort to
get my books ready for the accountant, I am recording
everything into double-entry software and producing a profit
and loss statement.

Twice per month, I pay myself. To do this, I credit the
Wages account (Liability) and debit the Cash in Bank
account. Easy enough. However, my wages include taxes
withheld which will be taken out of the Cash in Bank account
when I pay the IRS (quarterly). In addition, my company must
also withhold social security, medicare, unemployment, etc.
from my wages.

So, basically I have three amounts:
$x, my post-tax wage
$y, my tax withheld
$z, the amount my company needs to withhold

What is the proper method to enter these amounts into my
double-entry system?

Many thanks in advance for answering this newbie's question,

Adam

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