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Reconcile checks in Xero

When generating paper checks using your accounting software you may see an additional expense created on your books - this is because total gross wages are reported whether your employees were paid by direct deposit or by check.

This can cause issues when reconciling your expenses because the amount paid to employees may appear to be over reported.  

Our preferred method is for you to print the checks from your Gusto account or hand write them to avoid expenses appearing as over reported. Then, you can easily reconcile the total payroll expense from Gusto when the checks are cashed by your employees.

If you are not handwriting or printing your checks through Gusto, below are the best options to avoid over reporting.

Example of Over Reported Checks

You run a payroll that costs $10,000, where your employee is receiving a $7,000 check from you. In the $10,000 expense synced over from Gusto, you can see line items for $9,000 of gross wages (this includes a $7,000 check + $2,000 in employee taxes) and $1,000 of employer payroll taxes.

When you create a check for your employee in your accounting software, it will also create an expense for $7,000. As a result, when you look at your total payroll expenses you will now see that payroll for this pay period costs $17,000. When reconciling your books, however, only $10,000 will be taken from your checking account ($3,000 for employee + employer taxes and $7,000 from the cashed check).

The check created by your accounting software has led you to over report your payroll expenses, so when you look at your profit for the year it is lower than it should be. You will need to use one of the solutions described below to reconcile the over reported check payment.

Option 1: Reduce the expense account associated with Gross Wages, indicated by your mappings in Gusto, by the amount of the employees' check prior to creating the check in your Xero account. Reducing the Gross Wage expense by the check amount will prevent double counting.

Example: You sync over a total payroll expense of $10,000. Knowing that creating a check will over-report the expense by $7,000, you reduce the gross wage expense from $9,000 to $2,000.

Option 2: Create a liability line item to reduce the amount of the Bill by the amount of the check(s). The same liability account should then be used for the checks when the checks are written.

Example: You sync over a payroll expense of $10,000. Knowing that the check you create will be outstanding until cashed, you create a negative line item for the check amount for $7,000 in our Bill to a liability account. When you create the check, make sure you do not add it to an expense account. Instead associate it with the same liability account you just mapped the check payment to. The check will auto-reconcile when cashed.

How to edit a Gusto Xero Bill

  1. Sign in to your Xero Account.
  2. From Bill Options, select Edit.
  3. Change the account mapping for the check payment to your liability account.

To learn more about creating a liability check in Xero, click here.

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