See a video of Doug Sleeter demonstrating this process:[youtube]http://youtu.be/LkIcZVXPd4U[/youtube]
If you use an outside payroll service (or payroll software from a source other than Intuit) to process your payroll, using zero-dollar checks may be the easiest way to enter job cost payroll expenses.
One advantage to this method is that it does not require you to subscribe to any of the QuickBooks payroll services, and it does not cost anything to implement. In fact, you can completely turn off the payroll option in the Preferences window and you’ll never see any warnings about downloading tax tables or setting up your payroll. However, this method only approximates the payroll costs for jobs and classes, meaning that the amount of payroll expense allocated to each job and class will be based on the average hourly payroll expense of putting one person on any given job.
- Using a journal entry, enter the totals for your payroll into the general ledger just as you normally do when using a payroll service. This entry should credit the bank account for net pay, and debit the gross wages, payroll taxes, and other accounts as necessary.
- Compute the average cost incurred to place one person on any given job for one hour. To calculate this amount, you should look at your total payroll expenses for a given period (e.g. last quarter) including payroll taxes and worker’s compensation, subtract all payroll expenses are not job costed (e.g., officer salaries), and then divide by the total number of hours all employees worked on all jobs during the period. For the purposes of this discussion, we will assume the average hourly expense to be $18.00.
- Create a Bank account called Payroll Service Clearing. This will be a clearing account used to record the zero-dollar checks for the payroll job costing.
- Create an Expense account called Payroll Job Costs.Note: If you have long-term contracts whereby you capture job costs on the balance sheet in an asset account, you should use an Other Current Asset instead of an expense for Payroll Job Costs. Then, continue with the setup and transactions shown in this method.
- Edit each existing Service Item in your Item list, making them two-sided Items. Enter “Payroll Costs for Jobs and Classes” in the Description on Purchase Transactions field, enter “18.00” in the Cost field, and enter “Payroll Job Costs” in the Expense Account field. Then click OK to save your changes.
Note: This change to your Service Items will have no effect on their use in Sales Receipts or Invoices.
- Create an Other Name record (not an Employee record) for each employee.
- Enter daily time sheet information for each employee using the Other Name record you just created. On each timesheet, include the Service Item, the name of the job on which the employee worked, and the class (if applicable).
- Open the Write Checks window and select Payroll Service Clearing from the Account drop-down menu.
- Enter the employee’s name (Other Name) on the Pay to the Order of field of the Check. Then press TAB.
- QuickBooks will notify you that the name you entered has time sheet data in the file and ask if you want to use this information when creating this check. Click Yes.
- Enter 01/01/2007 in the Start Date field and 01/31/2007 in the End Date field. Then click OK.
- Select the period for which you want to job cost payroll expenses. If you use this method monthly, enter the beginning and ending date of the month. If you use this method quarterly, enter the beginning and ending date for the quarter.
- QuickBooks will then import the timesheet information into the Items tab of the Check, multiplying the number of hours the employee worked by the average cost per hour to place the employee on any given job.
- Click the Expenses tab and then enter Payroll Costs in the Account field and the amount of the check as a negative number in the Amount field. The net post to the Payroll Service Clearing account and to the Payroll Costs Expense account is zero.
- Click Save & Closeto record the zero-dollar check.Since you already used a General Journal Entry to update the General Ledger for payroll expenses, payroll liabilities, and bank accounts, it is very important that this check not increase the balance in the Payroll Job Costs expense account. If it did, it would overstate expenses for the period. You must therefore zero-out the amount of the check.
- Review the Profit & Loss by Job report to confirm that payroll expenses now show for specific jobs. Be sure to include the date of the Zero Check created above (01/31/2011) in your report.
- However, the Profit & Loss Standard report (and the general ledger as a whole) does not show any balance in the Payroll Job Costs account because you zeroed this account out when you recorded the check.
The Accounting Behind the Scenes
Essentially, this method uses a Check as a zero-dollar journal entry that feeds the job cost and class reports. The Items tab increases (debits) the balance in the Payroll Job Costs expense account by $3330.00, allocating the amount over each job and class on which Mike Mazuki worked for the period. The Expenses tab (Figure 11‑124) decreases (credits) the balance in the Payroll Job Costs expense account but does not affect job or class information. The job cost and class reports will therefore show the expenses by job and class, but the net effect on the General Ledger (e.g., the Profit & Loss Standard report) will be zero.
This is an excerpt from the QuickBooks Consultant’s Reference Guide by The Sleeter Group, available in print or as a PDF file.