My client, Barbara, recently applied for and received research and development funding for her business endeavors. This funding requires Profit & Loss reports to be submitted to board members each month for review.

The problem we faced here, per the Accountant, was that the payroll summary reports from the outsourced payroll services company, must match the payroll expense information on the Profit & Loss report. However since payroll summary reports are always based on accrual methods of accounting, this required adjusting journal entries to be posted into the cash-based accounting software to match the cash-based banking transactions that occurred each month.

For example: If IRS payroll tax payments are submitted on the last day of each month, these won’t really settle, per bank activity, until the beginning of the following month. Thus a discrepancy arises here between the payroll summary report tax payment submission information and the Profit & Loss cash-based banking information.

Another example are the state and federal unemployment payroll tax liabilities that get triggered, and thus show on a payroll summary report, immediately upon processing a payroll. These unemployment liabilities usually don’t get paid however until after the calendar tax quarter has actually completed. So, adjusting journal entries need to be made for these activities to match and reconcile the payroll activities as stated on the payroll summary report and the corresponding cash payments, per the bank statement.

This usually can be accomplished by creating and maintaining payroll liability type of accounts within the accounting software. In fact, any payroll related type of activities can be tracked and maintained within payroll liability type of accounts (in the accounting software), such as for:

• Health Insurance
• Retirement Accounts
• FICA Payroll Taxes
• Federal Withholding
• Unemployment Insurance Payroll Taxes
• Any other employee benefits to be paid later

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.