Employee expense and recording the deduction

d2m · ‎February 22, 2023

We paid for an employee expense, so the transaction was marked as an expense in our books. Then the expense was paid back by the employee by means of a deduction from their paycheck. We do not use QB payroll, we use a different company. I want to record the deduction transaction back to the expense so that our P&L is accurate, but we do the Cash method of accounting, so I do not have a live transaction to record and if I enter a journal entry, it wants to take the funds from a bank account, but it did not come from a bank account, we simply paid the employee less the deduction. How do I enter the deduction or resolve this in our books?

Rainflurry · ‎February 22, 2023

@d2m

Do you record payroll with a journal entry? Generally, a payroll deduction ends up as a liability (credit) entry. To clear the liability and reduce the expense, you would create another journal entry - debit the payroll deduction liability and credit the expense that you paid on the employee's behalf. That will zero out both the liability and the expense previously recorded with no effect on your bank account.

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Rainflurry · ‎February 22, 2023

@d2m

Do you record payroll with a journal entry? Generally, a payroll deduction ends up as a liability (credit) entry. To clear the liability and reduce the expense, you would create another journal entry - debit the payroll deduction liability and credit the expense that you paid on the employee's behalf. That will zero out both the liability and the expense previously recorded with no effect on your bank account.

d2m · ‎February 23, 2023

Thank you! The payroll transaction is not added as a journal entry because my bank account is set up with QB, so I just categorize the transaction which is always less the deduction. (For example, if gross wages is $1000, and the deduction is $100, only the transaction of $900 is linked to QB from my bank.) But your solution still worked for me, because I realized that I would just need to go go the $900 transaction and add a split. Using the same example as above, I changed the wages from $900 to $1000, and entered a negative -$100 applied to the correct category for the expense, and it did not affect my bank funds, since ultimately the transaction was still only $900. Thank you for your help in working this out!

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Employee expense and recording the deduction