Payroll With QuickBooks Online or Xero: How It Ties to Your Books

What your books need from every pay run

Every pay run creates the same set of numbers, no matter which payroll system you use. Your books need each one of them. When any piece is missing, the month end close gets harder.

The first number is gross pay. That is the full amount each worker earned in the pay period, before anything comes out. The books need gross pay on a wages line.

The second number is the amounts held for the agencies. Those are the amounts taken from each worker and the employer costs on top. Your books do not treat those as your expense. They sit in a liability account until they are sent to the agencies.

The third number is take home pay. That is what each worker actually received. The books need that number to match the cash that left the bank on pay day.

The fourth number is the employer costs. Those are the amounts you pay on top of wages. They go on their own lines, separate from the wages line.

Here is what your books need from every pay run.

• Gross pay for each worker.
• The amounts held for the agencies.
• Take home pay that matches the bank.
• Employer costs on their own lines.

Dates and rules change. Confirm what your books need from each pay run with your payroll provider, your CPA, or the agency.

How a pay run gets into QuickBooks Online or Xero

A pay run gets into your books in one of a few general ways. The right way depends on your setup, and your payroll provider can tell you which one applies to you. Your CPA decides the accounting method and we keep the books consistent with it.

One way is an import. The payroll system creates a file or a report. That report is brought into the accounting software so the pay run lands in the right accounts. The books get the wages line, the liability lines, and the take home pay all at once.

Another way is a sync. Some setups move the payroll numbers into the accounting software on their own, on a set schedule. The pay run shows up in the books without anyone typing it by hand. The sync puts each amount in the account your payroll provider set up.

A third way is a manual entry. Someone types the pay run into the accounting software by hand. The numbers come from the payroll report. Each line goes where it belongs. This way takes more time, but it works when the other two are not an option.

Here are the common ways a pay run gets into your books.

• An import from a payroll report.
• A sync from a connected payroll system.
• A manual entry typed from the report.

Ask your payroll provider which way your payroll gets into your books. Keep it general and confirm the setup with your provider.

The accounts to check each month

Each month, a few accounts tell the story of your payroll. When those accounts are right, the rest of the month end close is easier. Your CPA decides the accounting method and we keep the books consistent with it.

The wages account shows the gross pay for the month. It should match the total of every pay run. When it does not, a pay run is missing or a number was entered wrong.

The payroll liability accounts hold the amounts taken from workers and the employer costs. They sit there until the money is sent to the agencies. When the amounts are sent, the liability accounts go down. If a liability account keeps growing and never goes down, a payment was missed.

The bank account shows the cash that left. Take home pay leaves on pay day. The amounts held for the agencies leave later, on their own dates. The bank should match the books when each amount clears.

Here are the accounts to check each month.

• The wages account for total gross pay.
• The payroll liability accounts for amounts held.
• The bank account for take home pay and agency payments.

Ask your payroll provider or your CPA which accounts your books use for payroll. The names can differ.

What we check when we close your books

At month end we close your books. Payroll is one part of that close. We check the payroll numbers the same way every month so nothing hides. Your CPA decides the accounting method and we keep the books consistent with it.

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

We check the liability accounts. The amounts held should match the amounts sent. When a payment has not cleared yet, we note it and check it next month.

We check the bank. Take home pay and agency payments should match what left the bank. A fee from your payroll provider should be on its own line, not mixed into wages.

We check the employer costs. They should be on their own lines, not mixed into the wages line.

Here is what we check when we close your books.

• Every pay run is in the books.
• The liability accounts match the amounts sent.
• The bank matches take home pay and agency payments.
• Employer costs are on their own lines.

Your CPA decides the accounting method and we keep the books consistent with it.

Which software we work in

We are QuickBooks Online Accountants, or QBOA, and we work in QuickBooks Online and Xero. We keep the payroll lines in the same software your books live in. Keep it general and confirm the setup with your payroll provider.

Made up example for teaching

One monthly check from pay run report to the books

A small shop runs payroll every two weeks. The numbers below are made up and round so the math is easy to follow. They are not real rates or real rules. Confirm the real amounts with your payroll provider or your CPA.

The shop had two pay runs in the month. The first run shows gross wages of two thousand dollars. The amounts held for the agencies are five hundred dollars. The employer costs are two hundred dollars. The take home pay is fifteen hundred dollars.

The second run shows gross wages of two thousand dollars again. The amounts held are five hundred dollars. The employer costs are two hundred dollars. The take home pay is fifteen hundred dollars.

For the month, the wages account should show four thousand dollars. That is the two runs added together. The liability accounts should show one thousand dollars held, plus four hundred dollars in employer costs. The bank should show three thousand dollars in take home pay, plus the agency payments when they clear.

We check the books against the pay run reports. The wages line shows four thousand dollars. The liability accounts show the amounts held. The bank shows the take home pay that left on each pay day. The agency payments clear later in the month. Each line lands where it belongs, and the close that month is just a sum.

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. 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.

This is a made up example for teaching.

Common questions

Does payroll run inside QuickBooks Online or Xero? It can, or it can run in a separate system. The books still need every pay run. Ask your payroll provider which setup applies to you.

What if my payroll runs outside my books? Then the pay run comes in by an import, a sync, or a manual entry. The books still get the wages line, the liability lines, and the take home pay. Your CPA decides the accounting method and we keep the books consistent with it.

What do you check each month? We check that every pay run is in the books, that the liability accounts match the amounts sent, and that the bank matches take home pay and agency payments.

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.