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Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

I opened a SIMPLE IRA with matching contributions. My payroll provider deducts the employee contributions but I must make the deposits and matching contributions myself. 

I set up an Other Current Liability account for the employee contributions and an Payroll Expense account for my matching contributions.

 

I now have now downloaded several of these transactions from my business bank account but I’m unsure how to split the amounts and categorize them. My matching contributions seem straightforward (payroll expense), but I’m sure there’s a journal entry to make for the employees’ contributions and I’m flummoxed as to what the steps should be since I have basically no experience with journal entries.

11 Comments 11
MirriamM
Moderator

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thanks for providing detailed information about your concern, Tío Pipo

 

You can create a journal entry to record the payroll you've made outside of QuickBooks. But before doing so, I suggest consulting your accountant or accounting professional for guidance and what account receives the debit and credit side of the transaction.

 

To do this, here's how:

  1. From your outsourced payroll service, get your employees' payroll pay stubs or a payroll report.
  2. Click the + New button in the left navigation menu.
  3. Select Journal entry
  4. Fill out the fields to create your journal entry.
  5. Pick Save and new or Save and close.

 

For more details about this process, see the below articles:

 

For future help, you can visit the Get started with payroll tutorial and the QuickBooks Online Payroll Hub community articles for more information about using and setting up payroll.

 

Feel free to drop a comment down below for other questions about payroll. I'll be here to help. Have a good one.

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thank you, Mirriam!

 

But what is the idea behind the Journal Entry that I would be creating for the Employee's Contributions (assuming that I am correctly categorizing them an Other Liability)? In other words, what is my goal or what am I trying to avoid or offset?

AileneA
QuickBooks Team

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Hello, Tío Pipo.

 

Journal entries in QuickBooks allow you to correct inaccurate information in your accounting records or add transactions that you cannot add in other sections of the software, such as tax adjustments or depreciation expense. Also, journal entries let you move money between accounts and force your books to balance in specific ways. 

 

For example, you may have entered the monthly $100 utility bill into your company's insurance expense account by accident. You can post an adjusting journal entry to reduce, or credit the insurance expense account by $100 and increase, or debit the utility expense account by $100 to correct your mistake. All your accounts would then be in proper order, and you wouldn't have to change the amount owed by your vendor because that portion of the transaction was recorded properly. 

 

To learn more how Journal Entry works, please check out this article: What is Journal Entries

 

Know that you can always get back to me here in the Community if you have any other questions. I'll be around to lend a helping hand. Keep safe!

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thank you, AileneA, for your explanations, but clarify a few things for me, please. In your example, where you state that I wouldn't have to change the amount owed by (I assume you meant TO) my vendor "because that portion of the transaction was recorded properly," how is it that it was recorded properly when you state at the beginning that I mistakenly had pegged the "$100 utility bill" (I assume you meant my PAYMENT of that bill) to Insurance Expense by accident? I am a little confused.

ShiellaGraceA
QuickBooks Team

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thanks for getting back to us, @Tío Pipo.

 

I'll share some information about recording Simple IRA in QuickBooks. If you're creating a journal entry, you'll want to debit and credit the correct accounts (Bank and Payroll Liability accounts). Please refer to @MirriamM's post for the steps.

 

On the other hand, to avoid future offsetting of accounts, you'll want to add the Simple IRA agency as a vendor then create an expense transaction for the payment. Once you're ready to match your downloaded transactions, you can just find the matching expense transaction in QuickBooks.

 

Here's an article to guide you along: Categorize and match online bank transactions in QuickBooks Online.

 

I've also added this link in case you need help with bank reconciliation.

 

Please know that you're always welcome to swing by if you have follow-up questions or concerns with Simple IRA recordings. I'll be around for you. Take care and have a nice day ahead.

 

 

 

 

 

 

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thank you, ShiellaGraceA!

 

Splitting the downloaded transaction seems straightforward--one half to the Other [Employee] Liabilities account I set up and half to a SIMPLE IRA [Matching Contributions] Payroll Expense Account--but is that the correct way to split it? After all, the downloaded bank transaction is a record of my having already fulfilled the liability by depositing the employees' savings--and, yet, it is not an expense, either, since the money is coming out of their pre-tax pay.

 

(And is this the real reason that a journal entry would be necessary?)

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Hi, MirriamM!

 

Splitting the downloaded transaction seems straightforward--one half to the Other [Employee] Liabilities account I set up and half to a SIMPLE IRA [Matching Contributions] Payroll Expense Account--but is that the correct way to split it? After all, the downloaded bank transaction is a record of my having already fulfilled the liability by depositing the employees' savings--and, yet, it is not an expense, either, since the money is coming out of their pre-tax pay.

 

(And is this the real reason that a journal entry would be necessary?)

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thank you, MirriamM!

 

Splitting the downloaded transaction seems straightforward--one half to the Other [Employee] Liabilities account I set up and half to a SIMPLE IRA [Matching Contributions] Payroll Expense Account--but is that the correct way to split it? After all, the downloaded bank transaction is a record of my having already fulfilled the liability by depositing the employees' savings--and, yet, it is not an expense, either, since the money is coming out of their pre-tax pay.

 

(And is this the real reason that a journal entry would be necessary?)

 

AlexV
QuickBooks Team

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Hi Tío Pipo!

 

Let me further help you with the downloaded payroll transaction.

 

Yes, you can split it into two different accounts, the expense, and liability. However, it'll still deduct from your bank balance even if you categorized the downloaded bank transaction as a liability. You still need to create a journal entry to correct your bank balance to avoid discrepancies. 

 

Also, most of the time, you'll need to create journal entries when you enter payroll entries into QuickBooks Online. It'd be best to work with your accountant to ensure that you're tracking your payroll correctly.

 

I added this link if you need help in reconciling your accounts in QuickBooks Online: Reconcile an account in QuickBooks Online.

 

Leave a comment again here if you need more clarifications. Take care!

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thanks, Alex V!

 

I wish it were all more straightforward. Many businesses use an outside company like ADP or Paychex to do the payroll and just download the transactions from their bank and categorize them accordingly. This SIMPLE IRA transaction has thrown me for a loop. My accountant did try to explain what to do (mentioning journal entries and something about taxes) but he seemed impatient with my understanding the underlying concepts and was trying to get me to pay him to do my books, which I balked at. He promised to send me "literature" to explain it but he just sent me a link to this forum. Everyone has been helpful but what I most need is a solid example of how to categorize and clear this transaction which includes both the employees' money and our matching contribution. Have a great day!

Tío Pipo
Level 2

SIMPLE IRA SETUP FOR OUTSOURCED PAYROLL

Thanks, Alex V!

 

I wish it were all more straightforward. Many businesses use an outside company like ADP or Paychex to do the payroll and just download the transactions from their bank and categorize them accordingly. This SIMPLE IRA transaction has thrown me for a loop. My accountant did try to explain what to do (mentioning journal entries and something about taxes) but he seemed impatient with my understanding the underlying concepts and was trying to get me to pay him to do my books, which I balked at. He promised to send me "literature" to explain it but he just sent me a link to this forum. Everyone has been helpful but what I most need is a solid example of how to categorize and clear this transaction which includes both the employees' money and our matching contribution. Have a great day!

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