How Payroll Fits Into Your Month End Close

What the month end close is

A month end close is a check that your books agree with the bank and the bills for the whole month. It is the last step before the month is over and the next one starts. When the close is done, the numbers on your reports are the real numbers.

The close has a few parts. We match every bank and card account to the bank. We match every bill and invoice to what came in and what went out. We sort any transactions still sitting in a catch all bucket. We look at the accounts that hold money for others and make sure they clear. Payroll shows up in three of those parts.

The close is not a wall between payroll and the rest of the books. Payroll moves the same cash and the same accounts as everything else. If a pay run is left out, the bank will not agree and the close stops until it is fixed.

Where payroll fits

Payroll touches three places in the close. It touches the wage lines, the liability accounts, and the bank. When all three agree with the pay records, the close can move on. When one is off, we stop and find why.

The wage lines come first. Every pay run in the month adds to the wage total. The wage total on the books should match the wage total on the pay records for the month. When the two agree, the labor cost for the month is right. When they do not, a pay run is missing or a number was entered wrong.

The liability accounts come next. The amounts held for the agencies sit in those accounts until they are sent. At month end we check that the amounts held match the amounts sent. When a payment has not cleared yet, we note it and check it next month. When an amount sits there month after month, a payment was missed.

The bank comes last. Take home pay leaves the bank on each pay date. The amounts sent to the agencies leave on their own dates. The bank should show each one. When the bank and the books agree, the close for payroll is done.

Here is where payroll fits in the close.

• Wage lines: the total for the month matches the pay records.
• Liability accounts: the amounts held match the amounts sent.
• Bank: take home pay and agency payments show up on the right dates.

The payroll checks we do before we call the books closed

Before we call the books closed, we run a short list of payroll checks. Your CPA decides the accounting method and we keep the books consistent with it. These checks make sure nothing hides before the month is signed off.

We check that every pay run for the month is in the books. We match the pay runs on the pay records to the wage lines. When one is missing, we find it and add it.

We check the liability accounts. The amounts held should match the amounts sent. A fee from the payroll provider should sit on its own line, not mixed into wages. We keep the two apart so the wage total stays clean.

We check the bank. Take home pay and agency payments should match what left the bank. When a payment has not cleared yet, we note it and check it again next month.

We check the employer costs. Those are the amounts you pay on top of wages. They go on their own lines, separate from the wage line.

Here are the payroll checks we do before we call the books closed.

• Every pay run for the month is in the books.
• The liability accounts match the amounts sent.
• The bank matches take home pay and agency payments.
• Employer costs sit on their own lines.
• A provider fee sits on its own line, not in wages.

Why we finish by the 10th

We are QuickBooks Online Accountants, or QBOA, and we work in QuickBooks Online and Xero. We finish your books by the 10th of each month. Payroll is one reason that date matters. The pay runs for the month have to be in, the amounts held have to be checked, and the bank has to agree before the reports go out. The 10th gives us room to catch a late clearing payment without holding up the rest of the close.

Some agency payments leave the bank after the first of the month. A payment sent on the last day of the month can clear a day or two later. When that happens, we note it, we check it again, and the rest of the close keeps moving. The 10th is the day the books are done and the reports go out.

What you can do to make it faster

A few things on your side make the payroll part of the close go faster. The sooner the pay records are ready, the sooner the wage lines can be checked.

Send the pay records for the month as soon as they are final. When the pay runs are in our hands early, the wage lines get checked early. When we wait, the close waits too.

Keep one bank account for pay. When take home pay and agency payments come out of the same account, the bank side of the close is simpler. The cash that left is easy to see and easy to match.

Tell us about any corrections. A pay run that was fixed or redone changes the wage total and the amounts held. When we know about it, we match it to the books. When we do not, the books and the pay records stop agreeing and we have to find why.

Here is what you can do to make the close faster.

• Send the pay records as soon as they are final.
• Keep one bank account for pay.
• Tell us about any pay corrections.
• Send the agency payment dates when you have them.

Made up example for teaching

A four person company at month end

A small company has four people on the team. The owner uses their own payroll provider to run the pay, take out the right amounts, send the pay checks, and send the filings. We keep the books. The numbers below are made up and round so the math is easy to follow. They are not real rates or real rules.

The company runs pay every two weeks. In the month just closed there were two pay runs. The first run shows wages of two thousand dollars. The second run shows wages of two thousand dollars again. The wage total for the month is four thousand dollars.

The amounts held for the agencies are five hundred dollars each run. The employer costs are two hundred dollars each run. Take home pay is fifteen hundred dollars each run.

At month end we check the books against the pay records. The wage line shows four thousand dollars. The liability accounts show one thousand dollars held and four hundred dollars in employer costs. The bank shows three thousand dollars in take home pay. The agency payments have not cleared yet, so we note them and check them next month.

The owner sends the pay records on the second of the month. By the fifth, every pay run is in the books and the wage line agrees. The bank agrees on the take home pay. By the 10th the books are closed and the reports go out. The one open item is the agency payment that has not cleared the bank yet, and we will close that next month.

This is a made up example for teaching. Your numbers and your setup are your own. Confirm the dates and rules that apply to you with your payroll provider, your CPA, or the agency.

Common questions

Does payroll have to be done before the month end close? Payroll has to be in the books before the close is called done. The wage lines, the amounts held, and the bank all have to agree with the pay records first.

What if an agency payment has not cleared the bank yet? We note it and check it again next month. The rest of the close keeps moving. The payment shows up when it clears and we match it then.

Why do the books and the pay records stop agreeing? A pay run is missing, a number was entered wrong, or a correction was made and we were not told. We find the gap and fix it so the two agree again.

Do you run the payroll? We offer monthly payroll with pay runs every pay period, pay checks, filings and a clean tie to your books. You can read more on our payroll page or reach us on our contact page.