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Level 1

If using payroll accruals via journal entry, is it normal for payroll to be same total on both cash and accrual basis P&L?

 
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Best answer May 08, 2020

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Community Champion

If using payroll accruals via journal entry, is it normal for payroll to be same total on both cash and accrual basis P&L?

Payroll, as an expense, should be posted only on the date paychecks are produced. This is SOP for the IRS and the way you should record payroll. The same date as payroll, payroll liabilities will be posted and any that are employer expense will also post on that date as an expense. You do not get to defer the expense, even if the payment is deferred - or not due until the next fiscal year.

 

Aside from that, the use of journal entries bypasses the distinctions between accrual and cash basis reporting so the answer to your question as posed is YES

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3 Comments
Community Champion

If using payroll accruals via journal entry, is it normal for payroll to be same total on both cash and accrual basis P&L?

Payroll, as an expense, should be posted only on the date paychecks are produced. This is SOP for the IRS and the way you should record payroll. The same date as payroll, payroll liabilities will be posted and any that are employer expense will also post on that date as an expense. You do not get to defer the expense, even if the payment is deferred - or not due until the next fiscal year.

 

Aside from that, the use of journal entries bypasses the distinctions between accrual and cash basis reporting so the answer to your question as posed is YES

View solution in original post

Level 9

If using payroll accruals via journal entry, is it normal for payroll to be same total on both cash and accrual basis P&L?

Yes, total dollars will be the same but the timing of the entries by accounting period would be different.

I must disagree with John Pero (although I usually agree with his posts, I am so surprised buy this one).

For starters, the IRS does not decide how you do your accounting!  They are only responsible for taxes.

 

If you are doing accrual-basis accounting, labor expense must be recorded in the period EARNED along with associated revenue EARNED is recorded in same period.  Labor and revenue for June is recorded in JUNE, even if employees are not paid and customer is not billed until July.

 

Otherwise you are doing cash basis accounting.

Level 1

If using payroll accruals via journal entry, is it normal for payroll to be same total on both cash and accrual basis P&L?

Like Teri stated, if using the accrual method you must record the the expense in the period incurred, regardless whether or not paid.  If you have a bi-weekly payroll and the period ends a week into the following month, you would record an accrual for one week of pay.  The following month, that journal entry would normally reverse and the full pay would hit the P&L.  That is accrual accounting. An accrued account, but its definition is used for accrual accounting and not cash based accounting.  In cash based accounting the full amount should be shown in the following month when it is paid.  Why QBO doesn't allow a choice of whether a JE is cash or accrual basis is boggling. We use both cash basis and accrual basis reports for different purposes, but QBO doesn't allow for this since it JE's are included in the cash basis. 

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