How to create payroll transaction in QuickBooks accounting version?

Many of the QuickBooks users who are using the accounting version likes to record the payroll but do not know how to go about it.

Payroll feature is not included in the QuickBooks Accounting version. So to do it, user can consider passing a General Journal into QuickBooks.

Why General Journal?

I saw some user used a Write Cheque method for salary expense and minus off the contribution such as CPF employee, CPF employer, SDF, CDAC and etc. Personally, I don't like this method as this method uses a negative value in a Write Cheque form and it may cause problem to the database (I seen an earlier version having errors in negative value). Besides, it may sometime cause confusion to the management and auditors.

A better method is to use a General Journal to record your payroll as an accrual and follow by Write Cheques to the employee and CPF board.


Below is an example to illustrate how to use General Journal for payroll recording.

Scenario:

Employee name: ehlim
Monthly basic salary: $1000.00
CPF employee deduction: 20% of the basic salary
CPF employer contribution: 14.5% of the basic salary

Create General Journal

In the General Journal form:

Debit: Salary expense: $1000.00
Debit: CPF Employer expense: $145.00
Credit: Salary Payable (other current liability a/c): $800.00
Credit: CPF Payable (other current liability a/c): $345.00

Note:

  • Under the name column of the General Journal form, select the employee's name. This will enable you to print a transaction report of this employee at the later stage.
  • Optionally, you may consider entering short information regarding this salary journal in the memo field. The memo can be such as "Salary for the month of Jul 20009".

This is to accrue monthly salary and CPF expenses. You will able to see this information (the General Journal that you have just created) in Profit & Loss report and Balance Sheet report.

Write Cheque to the employee

Next you have to prepare a pay cheque for your employee. In the Write Cheque form:

Pay to the order of: select your employee's name
Amount: $800.00
Account column: select Salary Payable account.

Double entry for this Write Cheque transaction is debiting Salary Payable account and crediting Bank account.

Go back to your Balance Sheet report, you will find that your Salary Payable account will be reduced. This entry will not have any effects to the Profit & Loss report as there isn't any entry to the income or expenses account.

Write Cheque to the CPF board

Use the Write Cheque method to pay for the liability due to the CPF board for the CPF accrual amount.

In the Write Cheque form:

Pay to the order of: select CPF Board
Amount: enter $345.00
Account column: select CPF payable account

Double entry for this Write Cheque transaction is debiting CPF Payable account and crediting Bank account.

The CPF Payable account of the Balance Sheet report is being net off with the Write Cheque transaction that you have just created.

The above three transactions illustrated a basic way of creating a payroll transaction for your business. If you feel that creating a General Journal is too difficult to understand or you preferred a more systematic way of recording payroll transaction, you may consider upgrading your QuickBooks Accounting software to QuickBooks Plus or higher version. For QuickBooks Plus or high version does come with a Payroll feature for you to manage your monthly Payroll.

Stay with my blog, I will introduce the QuickBooks Payroll feature in my coming blogs.

9 responses to “How to create payroll transaction in QuickBooks accounting version?

  1. I am still confused.

    What is the difference between this entry below and the entry you have? Is my entry below on cash basis or accrual basis and is the below entry correct?

    Dr Salary
    Dr CPF (Employee + Employer)
    Dr CDC/MBMF
    Dr SDL
    Cr CPF (Employee)
    Cr CDC/MBMF
    Cr Bank

    So in summary you are basically doing the below entry, but you should be doing the above entry as you need to record all the transactions right?

    Dr Salary
    Dr CPF (Employer)
    Dr SDL
    Cr Bank

    Another question is, if the salary is paid this month (which is the end of the financial year) and by right the CPF are always paid in the subsequent month so how do you do the entry now? There is accrual of CPF but not Salary right?

    Companies which pay Salaries to employees in the same month, does not incur Salary accrual right? But how about CPF Employee and CPF employer?

    • Nope. You missed out the accrual.

      As these are accounting process, suggest you contact your accountant. Do let us know if you need us to refer one to you.

  2. Thanks for your insightful blgo post.

    How about SDL, FWL, and CDAC, how shall we record in the General Journal?

    CDAC – Employee Deductable,
    SDL & FWL – Employer’s payables…

    So am I correct to assume, for all the SDL & FWL, they each should have their own expense and other current liability a/c, while CDAC will be just added on to the CPF payables portion?

    Thank you.

    • If those expenses are deductible from employee, you can post it to a subaccount, CDAC payable, which is under the main account of Payroll Liability. Some user may prefer to use the main account, Payroll Liability, instead; and added a memo “CDAC”.

    • I usually use journal for SDL, FWL and CDAC.

      Those Employer’s payable expenses should have its own expenses account (I prefer creating it as a subaccount of the main Payroll expenses account).

      • Thanks for your reply!

        Have the issue of Dec 11 Cpf payments…. not sure how to do that?

        Should I post the CPF entries in the General Journal before paying out via cheque?

        I posted as per normal with CPF EMPLOYER and TOTAL CPF plus AN ADJ. CPF EMPLOYEE A/C just for this…

        Dec 11 salary should not be in the accounts for Jan 12 since that had been taken care of and paid.

      • Journal should be posted first, debit expense and credit current liability account.

        Then, use write cheque function in actual pay out. The double entry will be debit current liability and credit bank.

  3. Hi! Thanks.
    I have corrected the error.
    Cheers!

  4. Hi, I would like to point out an error in the entry below.
    Debit: Salary expense: $1000.00
    Debit: CPF Employer expense: $145.00
    Credit: Salary Payable (other current liability a/c): $655.00
    Credit: CPF Payable (other current liability a/c): $345.00
    shouldn’t it be
    salary payable: $800.00 ?