When you create any kind of payroll transaction in QuickBooks—whether
it's a paycheck, a payroll tax payment, or an adjustment,—QuickBooks
expresses the transaction in terms of
QuickBooks features that use payroll items
QuickBooks identifies payroll transactions by their use of payroll
Payroll reports include only those transactions that use payroll items.
Payroll liability balances (on payroll reports and in the window you use to
write payroll liability payment checks) are based on transactions that use
Employee year-to-date amounts are based on transactions that use payroll
Payroll items are associated with accounts that track your company's
payroll liabilities and expenses. When you first turn on the payroll feature,
QuickBooks automatically creates the following accounts:
To keep your balance sheet and your profit and loss statements accurate,
QuickBooks associates the appropriate account or accounts with each payroll
item you create. You can modify this assignment, if you need to.
Customizing payroll accounts
You may change the names of the payroll liability account and payroll
expense account that QuickBooks provides. If you use numbered accounts, you may
change the account numbers QuickBooks provides.
You can also use subaccounts
of Payroll Liabilities to see more detail on your balance sheet for payroll liabilities and
subaccounts of Payroll Expenses to see more detail on your profit and loss
statement of your payroll expenses. For example, corporations may need to
report expenses for office salaries separately from those non-officer
Some payroll items, such as employee wages, represent expenses to your
company. When you create these payroll items, QuickBooks recommends that you
associate them with the Payroll Expenses account.
Liabilities are amounts you owe but have not yet paid. When you write
checks, QuickBooks deducts amounts for employee-paid taxes, for example, from
the total that you pay your employee. QuickBooks then places those amounts in
an account. When you set up your payroll items, QuickBooks recommends you
associate these types of payroll items with Payroll Liabilities account.
The balance in the Payroll Liabilities account increases with each paycheck
you write, until you go to the Pay Liabilities window and create a payment for
your outstanding liabilities.
Some payroll liabilities, such as company-paid payroll taxes or company-paid
benefits, are a combination of liabilities and expenses. For example, federal
unemployment tax (FUTA) both creates a tax liability and is a company expense
at the same time. Payroll items for company-paid taxes and company
contributions are usually assigned to both a liability account and an expense
Some payroll liabilities are not company expenses. For example, when you
write a paycheck, you withhold the amounts of federal and state withholding
taxes that the employee owes. Those do not go to the employee but instead your
company temporarily holds on to them until you turn them over to the
government. These represent a liability to your company—an amount you owe
but have not paid—but they are not an expense to your company, because it is
the employee that owes them, not your company. Other examples of payroll
liabilities that are not expenses include child support garnishments or
employee contributions to a 401k plan.