Reconcile check payments in your accounting integration
If you use your accounting software to generate checks to your employees, an additional expense may be created in your records. This is because our integration reports the total cost of the payroll, regardless of whether the employees are being paid by check or direct deposit. This can cause issues when reconciling your expenses, as the amount paid out to your employees will be overreported.
You run a payroll that costs $10,000. Gusto syncs over that expense to your accounting software. In the $10,000 expense you will see line items for $9,000 of gross wages and $1,000 of employer payroll taxes.
Gusto will pull $3,000 for the total taxes (employee and employer) and you will be writing a check for $7,000 to your employee.
When you create a check for your employee in your accounting software it will also create an additional expense for $7,000. 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 the 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 options described below to reconcile the overreported check payment.
How to reconcile over-reported check payments
Reduce the expense from Gusto by the amount of the employees' net pay before creating checks. Reducing the wage expense by the net pay amount will prevent double counting. Then it is alright to create an expense when creating the checks.
- 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.
Do not use your accounting software to create checks for your employees. Instead, print the checks from your Gusto account or hand write them. Then you can reconcile the total payroll expense from Gusto when the checks are cashed by your employees.
- Example: You sync over a payroll expense of $10,000. Gusto pulls $3,000 for taxes and the employee cashes the check for $7,000. No separate expense has been created for the check, so the $10,000 associated with payroll equals the expense from our integration. When reconciling the payroll you will use the $3,000 cash withdrawn by Gusto and the $7,000 cash withdrawn when the check was cashed.
Note: Use of a clearing account is encouraged to track outstanding checks in this scenario.
Create a liability line item for the check amount by editing our expense. When the checks are written you will book them against the liability and not create a new expense.
- Example: You sync over a payroll expense of $10,000. Knowing that the check you create will be outstanding until cashed, you create a corresponding liability for $7,000. When you create the check make sure you do not add it to an expense account, you must associate it with the liability account you just created. The check will auto-reconcile when cashed.