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Help with end of year accounting

Hello, I’m new here and hope I’m not asking a silly question. I’ve searched but can’t find a thread that applies.

I have a small ltd company with just two directors. I moved onto quickfile from quickbooks this year and am doing my annual accounts to send to the accountant. The accountant does all our payslips and tax for us, I’m just using quickfile to log everything.

Corp tax and PAYE were showing as assets on my balance sheet. I have sorted the corp tax problem using journal entries, that I saw on one of these threads, but can’t work out the PAYE.

When we get our payslip from the accountant, we pay ourselves and then I log it on the banking on quickfile. This seems to work and shows fine on our reports.
But we also have to pay a quarterly PAYE amount to HMRC. Again, I have just logged this as being paid through the bank account but don’t know what journal entry to do as it is the total of those four amounts that shows as an asset. Can I debit PAYE and credit something else to balance it out like I did with the corporation tax?

Many thanks

Lizzy

You’ll need to create a journal and date it prior to when those amounts came out of the bank and reverse the entries.

That will zero the balance sheet.

That’s fantastic, thanks for such a quick response.

Happy to do that and please excuse my ignorance, but which codes should I use on the journal? What to debit and what to credit (if anything)?

for example, if I have a PAYE amount for the 18th December for £100, what would my journal look like?

Many many thanks

This is an explanation I wrote a few years ago which should cover most of it, let me know if anything doesn’t make sense:

(It’s a little more complex if there are things like pension contributions or student loans to account for)

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Thanks for this,

I have seen this process before on another thread, but wanted to avoid all of this keying as it is just a quarterly payment in addition to the payslips, not as part of them. If I can do the journal like Paul suggested, that would be great - I just need which codes to debit and credit.

Cheers

Lizzy

It depends on how your settings are set to record wages and how detailed you want your p and l to be.

When I tag a salary payment a journal is created as follows

1200 current account Cr
2220 net wages Dr
2220 net wages Cr
7003 net staff salaries paid Dr

When I tag a tax payment as paye a journal is created as follows

1200 current account Cr
2210 P.A.Y.E Dr

But prior to these payments I create a journal as follows

7003 Net staff salaries paid Cr
2210 P.A.Y.E (tax and ni to hmrc) Cr
7000 Gross Wages Dr

This is what happens if you have “post net wages to balance sheet only” set to OFF in your settings, if it’s ON then you don’t get the journal at all, just a direct posting to 2220 net wages.

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Ah OK in that case then I assume if the setting is on the journal would look like

Current account Cr
Net wages Dr

In which case a prior journal would be

Net wages Cr
Paye Cr
Gross wages Dr

I guess

Thanks guys, really appreciate the help.

I didn’t realise I needed to do all this journal stuff. On Quickbooks, I just logged things as having been paid and that was that. I’m sure I don’t need to break down everything about our salary, as the accountant does all of that - it doesn’t need to show on this package. I just want to show it’s been paid out of our current account and for it not to show up on assets on my balance sheet. If there isn’t a way to do that simply, I may need to go back to what I used to use. bumpants.

If you don’t want it to show as assets on your balance sheet then you have to move it to expenses on your P&L. That’s how double entry book keeping works, debits and credits must always balance.

However if you’re not bothered about properly separating wages, employers NI, employer pension contributions, etc in your P&L and are happy for them all to be bundled together then you could simply create one “employment costs” nominal in the 7xxx range and then instead of tagging PAYE payments as “tax payment to HMRC” and payments to the directors/employees as “wages or salary” you could just tag them all (and also things like payments to your pension provider if you have one) straight to the new nominal as “something else not on this list”.

This works because the sum of all the actual costs (gross wages plus employer NI plus employer pensions etc) is equal to the sum of all the actual payments (net to employees plus deducted tax/EE NI and supplemental employer NI to HMRC, plus employee and employer pension contributions to the pension company), but it may not be 100% accurate around your year end date (when you’ve incurred costs in the last payroll of the year but don’t pay HMRC until later).

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As Ian said, its all out double entry, im not quite sure how Quickbooks can just handle Payroll by just clicking on the payment, that doesnt make sense to me. Sure, if you were to tag a payment as wages it might somehow replicate that as being an expense on the P and L, but wages are recorded prior to being actually paid. Therefore a journal would be needed to record that as a company debt, until its paid, reversing that debt on the balance sheet.

As Ian said, it will create problems at year end otherwise.

A good example is this.

Say your company year end is 31st March, but the last payment for payroll for the tax year is 5th April.

Your accounts would need to show a balance sheet entry of the last months payroll payment being due, because it hasnt actually been paid yet.

Once payment was made on 5th April, tagging that payment would remove the liability on the balance sheet.

Another reason for this, is if you didnt do it this way, your overstating the companies cash flow, because your not accounting for payments becoming due after year end.

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