CMS Fund Accounting - How Payroll Updates the Ledger System

Either the CMS Payroll System was set up by another user, or it’s been so long since you’ve had to make changes to the payroll system that now it’s a mystery on how the payroll system updates the ledger program. Here’s an explanation of what happens when payroll posts.

EMPLOYEE GROSS PAY SETUP

First, you set up employees by entering their General information, their Employment information and their tax data. 

When you enter their Pay Data, you will begin to see how the Payroll Program updates the Ledger.

Here, you will need to put in a shortcut for a Gross Pay Account. A Gross Pay Account is really just a Salary Expense account.

In this example, Beth Finn’s Child Care Salary is charged to account 700 in the General Ledger.



If Beth worked 10 hours, her gross pay would be 10 x $11.25 or $112.50. This $112.50 is an expense to the church and on the General Ledger it is recorded under expense account 700, the cash would come from the checking account. If there were no deductions or benefits (or taxes) that would be the ONLY expense account that you would need to consider. At this point the journal entry for this person pay would be as follows:

Debit

Credit

 

Net Check $112.50 - 100 Checking

Gross Pay $112.50 - 700 Child Care Salaries

 

DEDUCTIONS AND TAX WITHHOLDINGS

You can setup deductions and benefits by clicking on Options and then Deduction & Benefit Setup. Use the new DB interview to begin adding a deduction or benefit. During the setup of a Deduction, you will be asked to link it to a liability account. When you withhold money from an employee for a deduction it is NOT an expense to the church. You have ALREADY recorded the expense of employing this person in their GROSS salary. Simply, you are holding onto these funds on their behalf. If you need to setup a NEW account for this withholding, you can click the New Account button on the right.



It is recommended to use different Liability Accounts for EACH deduction that your employees have.

Taxes that are withheld from an employee follow the same guidelines. However, Social Security and Medicare can be combined into one FICA account.

So, in our example the employee Beth Finn is paid a Child Care Salary. Now, let’s add some deductions for Taxes. She will have money withheld for FICA, Federal and State Taxes.

Debit

Credit

 

Net Check $91.89 - 100 Checking

Gross Pay $112.50 - 700 Child Care Salaries

 
 

Social Security Withheld $6.98 - 200 FICA

 

Medicare Withheld $1.63 - 200 FICA

 

Federal Withheld $7 - 201 Federal

 

State Withheld $5 - 202 State

Notice that withholding from a check DOES NOT change the Gross Pay Expense. It only changes the NET CHECK amount for the employee. Adding another deduction will have the same sort of effect on the journal entry.

If a deduction is PRETAX… that means that the deduction is taken from the gross pay BEFORE taxes are calculated….

  • Gross pay – Pretax Deductions = Taxable gross
  • Taxable gross x 6.2% = Social Security withheld.
  • Taxable gross x 1.45% = Medicare withheld. (etc)
  • Net Check = Gross Pay – Taxes - Deductions

If a deduction is SUBJECT to TAXES… that means that the deduction is taken AFTER taxes are calculated.

BENEFITS AND EMPLOYER’S TAXES

You can setup deductions and benefits by clicking on Options and then Deduction & Benefit Setup. Use the new DB interview to begin adding a deduction or benefit. During the setup of a Benefit, you will be asked to link it to an Expense and a Liability account. When you withhold money from an employee for a deduction it is NOT an expense to the church. When you offer a benefit that benefit IS an expense to the church. If you need to setup NEW accounts for these expenses or liabilities, you can click the New Account button on the right.



It is recommended to use different Liability Accounts for EACH benefit that your employees have.

Employer’s Taxes follow the same guidelines. However, Social Security and Medicare can be combined into one FICA account for the liability and one for the expense.

So, in our example the employee Beth Finn is paid a Child Care Salary. We added some deductions for Taxes. She will have money withheld for FICA, Federal and State Taxes. Now, let’s add the Benefits for Social Security and Medicare.

Debit

Credit

 

Net Check $91.89 - 100 Checking

Gross Pay $112.50 - 700 Child Care Salaries

 
 

Social Security Withheld $6.98 - 200 FICA

 

Medicare Withheld $1.63 - 200 FICA

 

Federal Withheld $7 - 201 Federal

 

State Withheld $5 - 202 State

Employer’s share Social $6.98 -602 FICA expense

 

Employer’s share Medicare $1.63 -602 FICA expense

 
 

Employer’s share Social $6.98 -200 FICA

 

Employer’s share Medicare $1.63 -200 FICA

Notice that adding a benefit to a check DOES NOT change the Gross Pay Expense OR the NET CHECK amount.

If a benefit is NOT subject to taxes… that means that the taxes are calculated BEFORE the benefit is added.

  • Gross pay – Pretax Deductions = Taxable gross
  • Taxable gross x 6.2% = Social Security withheld.
  • Taxable gross x 1.45% = Medicare withheld. (etc)
  • Net Check = Gross Pay – Taxes - Deductions

If a benefit is SUBJECT to TAXES… that means that the benefit is added BEFORE taxes are calculated.

  • Gross pay – Pretax Deductions + Taxable Benefits = Taxable gross
  • Taxable gross x 6.2% = Social Security withheld.
  • Taxable gross x 1.45% = Medicare withheld. (etc)

Like Deductions, the amount that you need to pay out will be waiting for you in a liability account in your Ledger.

REIMBURSEMENTS AND ALLOWANCES

Reimbursements and Allowances, by definition are not subject to ANY taxes. These items are added to the check LAST.


On the employee’s Pay Data Window, you can add Reimbursements or Allowances the same way that you add regular pay items.

Here, you will need to put in a shortcut for a Gross Pay Account. The Gross Pay Account here is really just an expense account for the Reimbursement or Allowance.

When adding a Reimbursement or Allowance, click on the More Info button to define the type of Pay Item.

Choose Reimbursement or Allowance here…

Now, here’s how the journal entry looks with a Reimbursement…

Debit

Credit

 

Net Check $116.89 - 100 Checking

Gross Pay $112.50 - 700 Child Care Salaries

 
 

Social Security Withheld $6.98 - 200 FICA

 

Medicare Withheld $1.63 - 200 FICA

 

Federal Withheld $7 - 201 Federal

 

State Withheld $5 - 202 State

Employer’s share Social $6.98 -602 FICA expense

 

Employer’s share Medi $1.63 -602 FICA expense

 
 

Employer’s share Social $6.98 -200 FICA

 

Employer’s share Medi $1.63 -200 FICA

Mileage Reimbursement $25 - 605 Mileage

 

Notice that ONLY the NET check changes. The taxes remain unchanged.

You can review all of the deductions and benefits for a specific gross pay account by clicking on Options, then Deduction/Benefit Distributions…

This window will show you which accounts are updated when a deduction or benefit is calculated.

Have more questions? Submit a request

Comments

0 comments

Please sign in to leave a comment.