Hi:  Do you use the payroll module for paying yourselves or employees?   I disagree with this being one journal entry.  It should be set up as two, possibly three entries.  First of all, the Accounting and Legal debit should be a separate entry to record the accounting accrual at year end and the credit should be to an Accrued Liabilities account rather than Accounts Payable.   Second, the Wages & Salaries debit should be a separate entry to record the wages and the deductions and the payable to Receiver General for the CPP Payable.  This combined journal entry records the CPP Expense but doesn't show it being deducted off the wages and the entry for the payable to Rec. Gen. and Wages Payable as two separate amounts. 

Thirdly, the debit for Travel Expenses should be a separate entry and the credit should be to the account of whoever is owed that amount.  Lumping everyting in to "Accounts Payable" doesn't deal with all three of these things properly in your Simply books.

Could you explain whether or not this is an incorporated business or a Sole Proprietorship?   Also, who is "us" that is being given a salary?  Is the $63,000.00 between more than one person?   The CPP Expense of $1,701 -- has that amount of money been deducted off the salary/salaries of the person/persons being given the salary?  If so, why hasn't the "net" amount owing for each person been shown separately as Wages Payable and why hasn't the payable to the Rec. Gen. for the CPP amount been shown separately?  Do you have a breakdown from the Accountant showing these important numbers?  

Also, the $5,000.00 in travel expenses -- who is owed that amount of money?  It's a payable alright, but who to?    

The journal entry as you have presented it is possible to post, however it is not really broken down enough so that you will be able to follow what the intention of the entry is once you post it in to your books.  The wages and salary amount will have to be T4'd for the 2011 calendar year if your year end date has fallen in 2011.    If you are able to get your Accountant to break down this entry in to three separate entries you will have a much better understanding of what is going on and what to do with the information in your new fiscal year.   Otherwise, if you can answer most of the questions I have asked it would be easier to tell you how to get this all recorded.       Rita

 Hi Rita,

We are incorporated in Quebec. Our accountant suggested we pay salaries to 3 people and he sent me a spreadsheet detailing the breakdown:

Employee 1

Gross: 30,000

EI: 423.00

QPP: 1,311.75

QPIP: 161.10

Fed IT: 2,068

Quebec IT: 2,505

Net: 23,531.15

Employee 2:

Gross: 18,000

EI: 253.80

QPP: 717.75

QPIP: 96.66

Fed IT: 670

Quebec IT: 585.00

Net: 15,676.79

Employee 3:

Gross: 15,000

EI: 211.50

QPP: 569.25

QPIP: 80.55

Fed IT: 320.00

Quebec IT: 128.00

Net: 13,690.70

I haven't issued any salaries at all this year, but I can use the payroll module if necessary.

The CPP expense that I mentioned in my first post for 1,701 is actually for FSS ( I believe fonds de sante, I'm not sure) anyway, he derives that amount by multiplying the gross salaries (63,000) by 2.7%.

For the travel expenses, I actually emailed him on this because I have no idea what this is for. I'm assuming this is for a car allowance (we were discussing this topic at an earlier meeting, maybe he confused the accounts).

My year end date is May 31, 2011 and he came back to me on last Thursday with the adjusting entries. This is my first time doing a year end, so I'm quite confused. I hope I've answered some of your questions and you can help me figure out what to do.

If you think it's better to have multiple entries instead of the one he provided, is it proper to proceed that way, or must I follow the entries he gave me?

Thanks so much for your help.  

 Hi:  I am in B.C. and am not familiar with the various employee deductions that you have mentioned that happen in Quebec.  However, you will need to prepare T4's for these three employees at the end of the calendar year I assume, so entering each one of the entries separately in the applicable employee's payroll window would likely be the thing to do.  If the payroll module is set up to accomodate all those types of entries, and all the correct accounts are linked, you should end up with what you need.  However, you did mention that the Accountant gave you six months within which to actually pay out these amounts, as that is the requirement of Revenue Canada, you don't really have to "record" the actual amounts in the payroll module until such time as you will actually be paying out the money.

Since you have a complete breakdown of what needs to be done, and how you need to do it, you can do the entries in payroll before the end of November instead of recording them as at May 31st.   That being said you can do one journal entry that will take care of recording the Wages and Salaries, one to record the Accounting accrual, and a separate one to record the Travel Expense once you find out from the Accountant what it is for and to whom it will be paid.

The first journal entry can be the debit to Accounting and Legal and the credit to your Accrued Liabilities account.  Post this in the General Journal with the description "To set up accounting accrual at year end".   This will have to be reversed out later when you receive the actual invoice from your accountant for the year end work which you will then process through your A/P module as normal.  But the year end "set up" amount gets reversed because you don't want that same accounting charge to be expensed twice.    

The second journal entry can be the debit to Wages & Salaries for $63,000.00, a debit to FSS Expense (?) of $1,701.00, and a credit to Wages Payable of $63,000.00 and a credit to FSS (?)  Payable of $1,701.00.   This journal entry will be done in the General Journal as well with the explanation "To set up wages payable to 3 employees at year end".    This journal entry will also need to be reversed when the time comes to actually prepare the cheques to pay those three employees later in the year (or whenever you choose to make the payment -- since it's been set up, and presumably you have the money to pay it, it can be done any time.  You don't have to wait until the end of the six months.) 

The third journal entry can be the debit to Travel Expense and a credit to ????? Payable???.   You need to find out who the reimbursement amount is payable to.  If it is to an employee, it can be set up in the actual Accounts Payable module if you want so that you can record the amount owing to that person in the Accounts Payable and pay it to them from there.  

Since you have a very itemized spreadsheet of each employee's gross and all the various deductions, you will be able to record each one in payroll once you are ready to prepare and pay out the money.   Just don't forget to reverse that Wages portion of the year end entry before you do that.  I am assuming that the FSS Expense and Payable amounts need to stay on the books and be paid without that being deducted from each employee?  I assume that because I don't see a deduction for that off of each employee's detail.     Does any of this help?      Rita 

 Hi Rita,

Your post was very helpful. Thanks so much but I still have one problem. I was looking at my chart of accounts and I don't have an account set up for "wages & salaries payable". Could you please tell me what account class and account type to enter?

Hi:  Click open your Chart of Accounts.  Set up the new account in the Current Liabilities section of your Chart of Accounts.   Pick a number somewhere under your first few liability accounts that are already there.  After Accounts Payable somewhere.  In the Class Tab, choose Liability.  It will be an individual account as you will not be combining it with anything else.     Rita   

 Hi Rita,

I received a reply from my accountant regarding the travel expenses.

$5K represent an estimation of the travelling cost incurred for the year. So what I’m suggesting is if you have an agenda, you prepare an expense report for you and your children for the travelling that everybody incurred for business purposes including deposit to bank, meet lawyers, notary and accountant, to buy supplies (office) and any repairs on the building, meet tenants

My question is this, I didn't keep any records throughout the past year to support all this travelling, so what do I do, make an expense report based on estimates, and then what, pay out these estimates to the owners? Can this liability remain on the books for a while or must we pay it out as soon as possible?

 Hi:  Yes, you can make out an expense report based on estimates.   From now on keep a record of the times that the owners, their children, whatever, used there own vehicle to do business errands such as the things the Accountant suggested.  Get the mileage figured out to go from the business premises to these various places so you can be fairly accurarte in the future, or actually keep a log. 

The liability can remain on the books indefinitely if the $5,000.00 credit is being shown as owing to the owner in the Shareholder's Loan account.   Is the company an incorporated company?  Is the full amount owing to the owner/shareholder or is some of it owing to an employee?      Rita

 Hi Rita,

We are in incorporated company and the full amount is owed to the shareholders.

Our accountant said we could transfer this to shareholder loan, like you suggested. But when would I do that, in the new fiscal year?

I'm still confused about how to do the year end adjusting entry.

 Hi:  That portion of your year end adjusting journal entry can be done in the General Journal with a Debit to Travel Expense and a Credit to the Shareholder's Loan account for $5,000.00.    The date should be the year end date as that entry belongs in your prior fiscal year like all the other year end adjusting journal entries, not your new fiscal year.  Your new fiscal year has nothing to do with year end adjusting journal entries for the prior year. 

Remember I explained how to break up that one journal entry in to three parts I believe it was.  This part should be entered as I said above.  Rita  

 Thanks Rita,

It's clear now.

However, I have a question concerning car travel expenses for the new fiscal year. I'm planning on keeping a log of all the business travel that we do with our personal vehicles, but I'm not clear on how to expense this. Is there a formula to follow?

If I fill up my gas tank, can the full amount be expensed? Also, what other things can be expensed, for example, my car insurance, registration, oil changes, car tire changes, etc..?

 Hi:  If you are paying for all those things personally, keep all the receipts and keep a log of the kilometers/miles travelled and note down the amounts of all the receipts and when the purchases were made.  There is a formula to follow once the Accountant decides how it should be handled next year based on your mileage log and all the receipts.  There is more than one way it can be handled and the Accountant will tell you what to do as long as you keep track of everything.     Rita