Do you do your own bookkeeping or have another non-accountant employee tackle this as “other duties as assigned”? I find that non-accountants often struggle when recording payroll-related entries. Challenges may occur even if you use an outside payroll service since someone still needs to record the payroll entries in your accounting records in an accurate and timely manner. Here are some areas to consider to help you avoid common accounting mistakes:

Do you do your own bookkeeping or have another non-accountant employee tackle this as “other duties as assigned”? I find that non-accountants often struggle when recording payroll-related entries. Challenges may occur even if you use an outside payroll service since someone still needs to record the payroll entries in your accounting records in an accurate and timely manner. Here are some areas to consider to help you avoid common accounting mistakes:

Start with Your Chart of Accounts Set-Up

To facilitate proper payroll accounting, make sure you’ve set up your Chart of Accounts correctly in the first place. Entries involve recording your payroll-related costs and the related liabilities owed to others, such as the IRS and health insurance providers. To illustrate, below is a simplified version of what your payroll accounting entry might look like: 

*Note: if you desire, you can break down Gross Wage Expense even further to distinguish between any key staffing groups in your practice, such as OD professional staff versus administrative staff expenses.

Create Efficiencies in Your Accounting System

Human errors often occur when manually inputting data into your accounting system. To save you or your staff time and help avoid errors due to inconsistent processing, take advantage of features in your system that allow you to set up memorized transactions for recurring accounting transactions. You’ll still have to update your payroll journal entry for the appropriate payroll dates and amounts for that pay period, but the general accounts used will be automatically stored and easy to use each time.

Check for Negative Balances in Your Payroll Liabilities Accounts

To check for payroll mistakes, generate a balance sheet report for the month from your accounting system. If you pay your PR taxes when required, then the liability accounts generally should be zeroing out on a monthly basis. If you find they’re not, you’ll have to do further research to understand why; it’s possible that a mistake has been made that requires fixing. 

Perform A Quarterly Analytical Review

In addition to checking for negative balances, I recommend performing a quarterly review of your payroll activity to identify potential issues so they can be addressed promptly. This involves generating a profit and loss statement at the end of each quarter, which shows your payroll expenses (as well as other expenses) for each month in the quarter. Review the data for any unusual inconsistencies. For example, if your Gross Wage Expense shows significant variances across each month, but your staffing levels and salary amounts have not changed and there is no other logical explanation, it’s possible your payroll accounting entries were entered incorrectly.

Understand Payroll Filing Requirements

Even if you use a payroll service to manage your payroll process, you should still understand what forms are required to be filed with the federal, state and local authorities and when they are due, since you have primary responsibility for compliance. Federal forms include your IRS Forms 941, 940, W-2 and W-3. For more info, go to https://www.irs.gov/businesses/small-businesses-self-employed/employment-tax-due-dates. You should also consult your state and local authorities for other filing requirements.

For more info on how to optimize your payroll process, see my article http://fluorescene.odcommunity.com/optimizing-payroll-process/ 

How Consultance Accounting Can Help

As a virtual accounting firm who performs outsourced accounting services for OD practices and other professional service companies, Consultance Accounting www.consultancellc.com can perform your bookkeeping and accounting services, to include processing, recording and reconciling your Payroll. I’ll be happy to talk with you about ways to improve your practice. Orin Schepps, Founder and CEO @consultanceaccounting http://www.consultancellc.com