Episode 39: QuickBooks Payroll: Why the Bank Feed Isn’t Enough

Payroll can be one of the most confusing areas of QuickBooks because what you see leaving the bank does not necessarily tell you what actually happened with payroll.

An employee may earn one amount in gross pay, receive a smaller amount in net pay, and have several deductions and withholdings moving to completely different places. At the same time, the business may also have employer payroll taxes, retirement contributions, and other payroll-related costs that never appear in the employee’s paycheck at all.

That means a single payroll withdrawal in your bank feed may represent several different accounting transactions.

In this episode of QuickBooks Mastery for Small Business Success, Lee and Erica break down what business owners need to understand about payroll without getting buried in the mechanics of entering payroll transactions.

You’ll learn why gross pay and net pay are different, what payroll liabilities really mean, why payroll withdrawals should not automatically be categorized as Payroll Expense, and why your payroll reports are such an important part of understanding what actually happened.

Lee also shares some of the common payroll problems he sees inside QuickBooks files — including growing liabilities, duplicate payroll accounts, incorrectly categorized withdrawals, and payroll numbers that reconcile to the bank but still do not make sense on the financial statements.

Because reconciling the bank is important.

But a reconciled bank account does not automatically mean your payroll accounting is correct.

The goal of this episode is not to teach you every payroll entry or journal entry. It is to help you understand what your payroll numbers should be telling you so you can recognize when something deserves a closer look.

Key Takeaways

• Payroll is not one transaction. One withdrawal from your bank account can represent wages, payroll taxes, employee withholdings, retirement contributions, and several different liabilities.
• Gross pay and net pay are different. Your employee earns gross wages, while the amount deposited into their bank account is generally net pay after deductions and withholdings.
• Payroll liabilities are not automatically a problem. A liability simply means the business owes money somewhere else. The concern begins when those balances keep growing, are never cleared, or nobody can explain them.
• The true cost of labor can be higher than gross wages. Employer Social Security and Medicare taxes, unemployment taxes, retirement contributions, benefits, workers’ compensation, and other costs may all contribute to the actual cost of employing someone.
• Do not rely on the bank feed alone to understand payroll. The bank verifies that cash moved. Your payroll reports help explain what was actually inside that transaction.
• Payroll mistakes can distort both the Profit & Loss and Balance Sheet. Incorrectly categorized payroll can affect reported profit, labor costs, liabilities, cash-flow planning, and your ability to trust your financial reports.
• A reconciled bank account does not automatically mean payroll is recorded correctly. The cash can be right while the allocation between accounts is wrong.
• Business owners still need to understand payroll even when someone else processes it. You may have a payroll company or bookkeeper handling the mechanics, but the numbers ultimately affect the decisions you make about your business.

Questions to Reflect On

As you think about payroll inside your own QuickBooks file, ask yourself:

• Do I understand the difference between my employees’ gross pay and net pay?
• Do I know what the payroll liabilities on my Balance Sheet represent?
• Are payroll liabilities being cleared when the corresponding payments are made?
• Do any payroll liability balances continue growing month after month?
• Are payroll withdrawals being categorized entirely to Payroll Expense?
• Do the payroll numbers in QuickBooks agree with my payroll reports?
• Are there duplicate or similarly named payroll accounts in my Chart of Accounts?
• Do I know what my employees are really costing the business beyond their net pay?
• Does my payroll reconcile to the bank but still look wrong on my financial statements?
• Can I confidently use my payroll numbers when making staffing, pricing, or cash-flow decisions?

You do not need to personally process every payroll transaction to answer these questions.

But as the business owner, you should be able to recognize when the numbers do not make sense.

Mentioned in This Episode

Payroll Register

A payroll report that can help show employee gross wages and the details behind a payroll period.

Payroll Summary

A report that provides a broader breakdown of payroll wages, taxes, deductions, employer costs, and other payroll information.

Payroll Liabilities

Amounts your business may temporarily owe to taxing authorities, benefit providers, retirement plans, employees, or other parties.

QuickBooks Clarity Scorecard

Our free resource designed to help you evaluate the major areas of your QuickBooks file and identify where your books may need attention.

Download the QuickBooks Clarity Scorecard:

https://leedavisandcompany.com/wp-content/uploads/2026/02/Scorecard.pdf

Lee Davis & Company:

https://leedavisandcompany.com

Questions?

[email protected]

Recommended Resources

If this episode helped you understand why payroll depends on more than the bank transaction, these episodes will help you build on that foundation:

Episode 35 — Chart of Accounts

Understanding your Chart of Accounts makes it much easier to understand why payroll expenses and payroll liabilities belong in different places.

Episode 37 — Does Your QuickBooks Actually Match Your Bank? Why Reconciliation Matters

Learn why reconciliation is one of the most important checks you can perform inside QuickBooks — and why matching the bank is only one part of having accurate books.

Episode 38 — The QuickBooks Adjustment Toolbox: Credit Memos, Vendor Credits, and Journal Entries

Learn how to think about correcting transactions by first understanding what actually happened in the business instead of simply trying to make a number look right.

Timestamps

00:56 — Why Payroll Is More Than a Bank Transaction

Why the amount leaving your bank account does not tell you the entire payroll story.

01:54 — Gross Pay vs. Net Pay

Lee explains the difference between what an employee earns and what actually reaches their bank account.

06:11 — Understanding Payroll Liabilities

Where employee withholdings go, why payroll liabilities appear on the Balance Sheet, and when those balances should concern you.

10:49 — What Employees Really Cost the Business

Employer payroll taxes, benefits, retirement contributions, and the additional costs business owners need to consider.

15:32 — Why You Shouldn’t Categorize the Entire Withdrawal to Payroll Expense

Why one bank transaction may need to be divided among several expense and liability accounts.

20:54 — The Payroll Reports Business Owners Should Know

How the payroll register and payroll summary help explain what actually happened during payroll.

22:32 — How Payroll Problems Accumulate in QuickBooks

Growing liabilities, duplicate accounts, incorrect categorization, payroll-provider changes, and other common payroll problems.

29:38 — Why Payroll Accuracy Matters to the Business Owner

How incorrect payroll affects profit, labor costs, the Balance Sheet, cash planning, and your ability to trust your financial reports.

31:56 — Payroll Warning Signs to Watch For

Specific clues that your payroll setup or historical payroll accounting deserves a closer look.

33:34 — Understanding vs. Implementation

Why the podcast focuses on helping you understand what should happen while the course will provide the deeper step-by-step mechanics.

35:51 — The One Thing to Remember About Payroll

Payroll is not one transaction.

Call to Action

If this episode made you realize that you are not completely sure whether payroll — or another area of your QuickBooks file — is giving you accurate information, start with the QuickBooks Clarity Scorecard.

It will walk you through the major areas of your QuickBooks and help you identify what is working, what may need attention, and where you may need greater clarity.

Download the free QuickBooks Clarity Scorecard:

https://leedavisandcompany.com/wp-content/uploads/2026/02/Scorecard.pdf

Subscribe to QuickBooks Mastery for Small Business Success so you do not miss future episodes.

And if you have a QuickBooks question or something in your books simply does not make sense, we would love to hear from you.

Email us at [email protected].

We read and respond to every email.

QuickBooks Mastery for Small Business Success. I'm Erica Northrup.

And I'm Lee Davis.

I handle the tech, and he handles the numbers. And together, as a father-daughter team, we bring decades of experience helping small to medium-sized businesses thrive.

We know that as a business owner, your time is best spent mastering your craft and growing your business, not getting lost in QuickBooks.

Managing finances can be confusing, and you don't have hours to waste sorting through spreadsheets or fixing bookkeeping mistakes. That's where we come in, helping you streamline QuickBooks so you can focus on building your business.

Each week, we break it all down into simple, actionable steps so you can focus on growing your business, not fixing your books.

Let's embark on this journey together.

Welcome back to QuickBooks Mastery for Small Business Success. I'm Erica Northrup, and I'm here with my papa, Lee Davis, in person in Canada, which is quite exciting.

Anyways, this is Episode 39, you guys, and today we're talking about something that can be surprisingly confusing when you start looking closely at your QuickBooks payroll.

More specifically, why the amount you see leaving your bank account does not necessarily tell you what payroll actually costs your business, or where all that payroll money belongs in QuickBooks, because payroll is not simply money left the bank, categorize it to Payroll Expense, done.

There's quite a bit more happening underneath that one bank transaction.

Papa, I think that's probably where we should start. Why isn't payroll as simple as looking at the amount that came out of the bank?

This is one of the biggest misunderstandings with payroll.

The amount that reaches an employee's bank account is generally the employee's net pay. But the employee earned gross pay. Those are two very different numbers.

So explained simply, gross pay equals what the employee earned before deductions.

Net pay equals what the employee actually receives after deductions and withholdings.

Between those two numbers, money may have been withheld for things such as federal income tax, state income tax, Social Security, Medicare, retirement contributions, insurance, or other deductions depending on the payroll.

So if an employee earns $1,200, you will not see $1,200 leave the bank and go to the employee.

The employee will receive something considerably less, but that does not mean the business only had that small amount of payroll expense.

The bank tells you how much cash moved. It doesn't necessarily tell you what the accounting transactions were.

Okay, I think that's important.

I feel like that is absolutely key because we've spent so much time on this podcast talking about the bank feed.

We absolutely want people reconciling their bank accounts. We want those transactions to match.

But the bank feed isn't necessarily telling QuickBooks the entire story behind the transaction, is it, Papa?

Exactly.

The bank is giving us one piece of evidence. It tells us the amount of money left the checking account, but it doesn't tell us everything we need to know about why it left and how that amount should be divided among the accounts.

And payroll is probably one of the best examples of that.

Okay, awesome.

So Papa, let's follow the money for just a hot second here.

If the employee earned $1,000 but only received, say, $900 or something close to that, where did the difference go?

Because I think a business owner can look at that and think, "Where did the other $100 go?"

That money didn't disappear. Some of it was withheld from the employee's check.

For example, again, it's federal withholding, state withholding, the employee's Social Security, the employee's Medicare, retirement deductions, and other types of deductions, like perhaps health insurance or dental insurance or some type of deduction.

The important accounting distinction is that much of that money is not payroll expense, and I think that's a key element because if you look sometimes at the bank feed, it's going to categorize it.

And I have worked with a large client where it got categorized as Payroll Expense.

We're going to talk about that a little bit further down, but this is a real story.

The employee already earned the gross wage. You pay the employee 40 hours, 46 hours, regular plus overtime. That employee gets a gross wage.

The business is now temporarily holding some of the employee's money with an obligation to send it somewhere else.

This is why we begin seeing payroll liabilities.

Same illustration: the employee earns $1,200 gross wages.

After tax deductions, suppose the employee receives $900.

The business hasn't suddenly reduced its wage expense to $900. The employee still earned $1,200.

The difference may represent money that now has to go to the IRS, the state, a retirement provider, or somewhere else.

That's where understanding journal entries and the Balance Sheet becomes important.

And I suppose, Papa, that leads into something that I think sounds scary to a lot of business owners.

They open the Balance Sheet and see something called payroll liabilities.

And their first thought is probably, "What did we do wrong? What did I do wrong?"

Is having a payroll liability automatically a bad thing, Papa?

The payroll liabilities are a great place to keep track of what you owe.

Because a liability simply means the business owes that money to somebody else.

It's not yours.

And because the payroll taxes are going to be paid, usually if you use a payroll service like ADP, for example, they will pay those taxes that are due to the government.

Let's say that you're paid on Friday.

They will deduct the amount of the net checks on Wednesday because many people are paid by direct deposit.

And so those direct deposits will come out of your account on Wednesday, not Friday.

But the taxes will come out on Friday.

Now, QuickBooks has changed their whole plan or policy that the whole thing comes out on Friday.

So you see it as one lump sum.

Okay, you see one lump sum.

And it's more, of course, than the gross payroll because there are payroll expenses that have to get matched, like Social Security and Medicare.

So therefore, when you look at it, the employee may get paid on Friday, but some of the money withheld from that employee may not be remitted to the government or the benefit provider until a couple days later.

Paychex or ADP may deduct that money on Wednesday, and then they'll deduct the rest of the money on Friday.

So again, you need to understand money moving.

The federal withholding, the state withholding, Social Security, Medicare.

Sometimes there are certain garnishments in people's pay, and those are checks that get sent off, and just like any other check, it takes a while to clear.

But there'll be benefit deductions.

People have 401(k) deducted from their pay, and then there's a matching contribution that's done later, sometimes a month later.

So each type of deduction carries with it some kind of liability.

You can't always say, "Oh, the liability account is zero now."

There may be some monies that still have to be paid.

It takes some time to go through the normal processing.

I think the liability account is essentially saying, "This money isn't ours. Don't spend it."

You don't own it.

We still have an obligation to send it somewhere.

And I can't help but go back to a few clients that thought they could spend the government's money.

That money, if they chose not to pay their taxes, it's not their money.

No. They probably got in a little bit of hot water.

Yes. The government takes a very, very hard stance when you're spending their money.

Fortunately.

Yes.

It belongs to the employee, actually, because the employee is the one who earned the money in the first place.

Even though you paid it, you owe it.

Came out of your bank account.

It came out of your bank account.

If you follow the money, it's the employee's.

Absolutely.

So the money isn't ours, and we still have an obligation to send it to the correct place.

Okay.

So Papa, seeing money in payroll liabilities isn't necessarily the problem.

The question is whether the balance makes sense and whether those liabilities are eventually being cleared when the payments are made.

Is that about correct?

Yes.

That's the distinction.

You may legitimately have payroll liabilities at a particular point in time.

So there's nothing wrong with payroll liabilities.

What concerns me is when these amounts keep growing and nobody knows why.

Or payments are being made, but the liabilities are not being reduced.

That's when we start investigating.

Okay.

That's another layer here too, right, Papa?

We've talked about what comes out of the employee's gross pay, but the business can actually have payroll costs above the employee's gross wage.

Isn't that correct, Papa?

Absolutely.

This is another important distinction.

The employee has payroll taxes withheld from the employee's check, but the employer also has some payroll-related costs.

For example, they're going to have the employer's portion of Social Security. You have to match it.

And the employer's portion of Medicare.

And you do have some responsibility for state and federal unemployment taxes where applicable.

Lots of times payroll companies will get your unemployment rate, calculate that for each payroll, and those monies are remitted to the state or to the federal government.

When you think about what benefits employees are paid, oftentimes employees don't quite understand what the employer is actually paying out.

Right. It's substantially more than what you're receiving in your paycheck.

Of course.

And because there are laws for unemployment, workers' comp, and all of that, when you employ people you have to follow the laws in both your state and the federal government.

And you need to budget appropriately for taxes and so forth.

So what the business ultimately spends after the employee payroll, taxes, benefits, contributions, and other payroll-related costs are considered, those numbers will not necessarily be the same.

I suppose that matters from a management standpoint, doesn't it?

Because if I'm looking at my labor costs as a percentage of revenue, I don't necessarily want to look only at the checks that hit my employees' bank accounts, do I, Papa?

Absolutely not.

If you're trying to understand what your labor is really costing your business, lots of times the payroll reports, like in QuickBooks, will give you a total cost.

You need good accounting behind those numbers.

Looking at the payroll reports is helpful.

Otherwise, you're making decisions based on incomplete information.

Sometimes people are paid weekly, so every week you have to plan for these costs.

Sometimes people are paid biweekly, every two weeks, and that's quite common.

Very rarely are people paid monthly these days, but some states have regulations about how employees have to be paid.

You don't want the Department of Labor called on you.

You want your payroll funded appropriately.

If you don't have the funds available when payroll is processed, there can be consequences.

In reality, you almost have to think about payroll funds like a restricted fund.

The hours from the previous week get reported, and on Monday I'm always on my clients saying, "Okay, payroll by Tuesday."

It's coming.

So I can tell you the amount that you're going to have to have available.

That's really helpful because some people move money around from various accounts.

Payroll's a real thing.

It is.

Those things have to get paid.

Your employees like to get paid.

They do.

Absolutely.

Okay, this might be the most important practical takeaway from this episode, Papa.

Let's say I open the QuickBooks bank feed and see a payroll withdrawal.

Why shouldn't I just click Payroll Expense and move on, Papa?

Because the bank transaction does not contain the correct account information.

QuickBooks can, does, and has classified things as Payroll Expense.

And somebody might say, "Well, isn't it payroll expense?"

Well, no. Not in its entirety.

That number is not simply Payroll Expense.

The key element is that payroll involves liabilities, not just payroll expense.

We're going to move some of that when we make a journal entry.

We're going to record that initial transaction, but there are amounts that have to be paid out to whatever entity is owed.

Direct deposit has really become a thing today. Everybody likes to see their money show up in their bank account.

Who's picking up a physical check these days?

That's right.

So you want to know where the money goes.

Follow the money.

Follow the money.

Sometimes employees get paid on Thursday and the money will show up in their account early, but most of the time it's Friday.

In some instances, the employee has some responsibility for giving you the correct account information.

Sometimes when you don't get the right information, there's a delay.

You've got to fix it because the employee is still waiting for their deposit.

Right. They are.

It's still your problem.

Payroll can be quite comical in some cases after the fact.

But when you're in the middle of it, there's no humor there.

There can also be fees if you are late getting your hours in.

And those add up.

And they do.

Yeah.

You just need to understand that payroll day is systematic.

You do this, you do that, you do that, and then generally you do it over again the next week.

So when you look at the payroll transactions, it's going to involve several different accounts at the same time.

Wage expense, payroll tax expense, federal payroll liabilities, state payroll liabilities, Social Security liabilities, Medicare liabilities, retirement liabilities, and state and federal unemployment expenses.

That bank withdrawal can't simply be dropped into one Payroll Expense account.

It has to be broken out across multiple accounts, including expense and liability accounts.

One bank withdrawal cannot tell you how all these pieces should be allocated.

No, definitely not.

And that's why, when dealing with payroll, particularly if I'm clearing up historical payroll and payroll-related expenses processed somewhere outside of QuickBooks, I want the payroll reports.

Yeah, absolutely.

Those seem like they would be crucial and important for this process.

I want to know exactly what happened because I've got to follow the trail.

Follow the trail back and see what actually should have been recorded.

I don't want to build the entire payroll accounting from a bank withdrawal alone.

It's important that we're looking at matching in QuickBooks.

Right, there's that matching again.

We love the matching.

We love to match things.

Transactions oftentimes have to get deleted and the money has to go back into the bank feed.

You have to follow the trail back, do it right, make your journal entry, and look for the matching.

That tells you exactly what happened.

That's going to make all the difference for people.

If there's one thing they can get from this podcast at all, it is to match, period.

That's right.

Makes such a difference.

Almost think of the bank as the final confirmation.

Yes, the amount really did clear, but the payroll report tells us what was actually inside that amount.

Is that correct, Papa?

Yeah, that's a really good way to put it.

That's a great way to sum it up.

Okay. Love that.

Without getting into how someone enters all of this, because we're deliberately saving that implementation piece for the course, we really want to give people a deeper dive into payroll and everything that comes with payroll.

What should a business owner at least know exists?

I think there are two very useful payroll reports that I oftentimes use.

I will use the payroll register. That will give me the gross wages.

And then I'll look at the payroll summary, which will give me the breakdown of payroll expenses.

Those are two very important reports that I'm going to use to come up with the total payroll cost.

Depending on the payroll provider, the report names may differ.

But we need documentation that shows employees' gross wages, employee deductions, the total amount for federal and state withholding, the total amount for Social Security and Medicare withholding, and of course the employer taxes.

And then any retirement contributions that have to be recorded as that dreaded liability.

And don't forget net pay, which the employee is going to receive in their bank account.

So the payroll reports explain the transaction.

The bank verifies the cash.

Mm.

I think generally we need both pieces to see the complete picture.

Absolutely.

And this is the information that tells us what really happened during payroll, isn't it, Papa?

That's exactly correct.

Okay, so now let's get into the mess.

You've seen a lot of QuickBooks files where payroll was an accumulated problem over time.

How does that happen, Papa?

Sometimes when you look at the way the bank feed works, we've alluded to this before.

We had a really big client who had recorded all of their money out as payroll expenses.

When in fact, rather than creating the liability, they created the payroll expenses.

Sometimes the payment that comes out of your bank account is not recorded against the payroll liability.

People say, "Well, I didn't know that liability account existed."

Yes, it does.

Sometimes people way overstate their payroll expense and the liability keeps growing.

That affects your Balance Sheet and it affects your Profit & Loss.

There are clear elements to what I've seen in payroll messes.

And again, there's no quick fix for it.

You have to go back to each of those payroll registers and summaries and start recording it correctly.

Oftentimes your payroll service is doing things right.

However, on our end or on the QuickBooks side, we're not accounting for it correctly.

Sometimes it's a case where you may have months of payroll that you're cleaning up.

Sometimes it takes a while to get the reports and get it fixed.

But it will get resolved.

That's right.

Payroll liabilities can be created but never cleared.

There can be duplicate payroll accounts, especially if you're transitioning from one payroll company to another.

There could be a gap that nobody thought about.

One payroll company didn't talk to the other, and the owner may have simply been mad at the payroll company and decided, "We're switching today."

I'll say, "Could you think about switching at the end of the quarter, or at the very least at the end of the month?"

But sometimes they're doing it now.

Then you might see duplicate types of transactions.

Wages. Salaries and wages. Payroll expense. Payroll tax expense.

Nobody really knows which ones are being used or why.

The Profit & Loss becomes harder to understand because labor costs are scattered everywhere.

You may also have similar names for expense and liability accounts.

You might have a retirement account where the expense account and the liability account have the very same name.

Somebody set it up and didn't think about the fact that a 401(k) can have both a component of an expense and a liability.

You have to pay attention to which is which.

The liability and the expense serve very different purposes.

One affects the Profit & Loss.

The other sits on the Balance Sheet.

Choosing the wrong one can change your financial statements.

Again, sometimes a business switches payroll companies.

Maybe their accountant has been doing their payroll and they've decided now they're going to do it in QuickBooks.

There's a gap.

The bank feed is helpful, but QuickBooks still needs somebody to understand the transaction.

Automation doesn't remove the need for accounting judgment.

Okay, so these really are the reasons why payroll accumulates problems over time.

Because you mentioned retirement accounts, I think that's a really good example because it shows why the Chart of Accounts matters.

Can you explain the difference between a retirement expense and a retirement liability without getting into how to enter it?

Sure.

I think one easy way is to think about two pockets.

Yes, I do have pockets right now in my pants.

Two pockets.

One pocket is when you take money out of the employee's check.

You're going to deduct $200 from their check.

That money has to get paid to the retirement plan.

But out of the other pocket is money you're going to match.

Matching is a really important factor because sometimes the more money an employee contributes, the greater the match.

Oftentimes that's the way those retirement plans work.

It's a benefit for the employee.

It's a way you can attract employees to your business.

That's correct.

The more the employee contributes, you contribute up to a maximum.

So if the employee puts the maximum in, you contribute the maximum.

Out of the other pocket comes the match.

Those are handled differently.

One is right out of the employee's check.

Then later, you might put in the match.

But you create that liability for that match in some cases.

Some people just create that as 401(k) expense.

I prefer for them to see the liability.

I think it's good to understand.

Many times employers kind of glaze over the Balance Sheet, but the accountant in me likes to see that liability reported.

Absolutely.

And this connects directly back to our Chart of Accounts episode, doesn't it, Papa?

The name is helpful, but the account type is what determines where QuickBooks puts that number.

Exactly.

That's why understanding QuickBooks is so much more important than just knowing which buttons to click.

Absolutely, Papa.

So let's bring this back to the owner.

Maybe they have a payroll company. Maybe they have a bookkeeper. Maybe they never personally touch payroll.

Why should they care whether all of this is posting correctly?

Because they're ultimately responsible.

The buck stops here.

Payroll represents one of the largest costs in a business.

If payroll is wrong, several important numbers will also be wrong.

Your profit can be wrong if the wage expense or employer payroll taxes are missing, duplicated, or misclassified.

The Profit & Loss can be misleading.

Your labor costs can be wrong.

If you're trying to answer, "Is labor becoming too expensive? Can I afford another employee? Are we pricing jobs correctly? Is this department profitable? What percentage of revenue is going to payroll?" you need to have reliable payroll numbers.

Your Balance Sheet can also be wrong.

If payroll liabilities aren't being cleared correctly, your Balance Sheet may show that you owe more money than you've already paid.

Or worse, it might fail to clearly show money that's actually still owed.

Your cash planning can be wrong.

A business owner may think payroll was $20,000, but additional payroll taxes, retirement contributions, or other payments may still be coming out.

Understanding these obligations helps with cash flow planning.

And your financial reports become harder to trust.

I've said, "No. You do not look at your Balance Sheet or your Income Statement until we have this cleaned up."

Yes.

Then we'll get them corrected.

What looked like hazy numbers becomes clear numbers.

Your bank feed gets cleaned out, and you get back into a normal rhythm of looking at what your payroll costs are and how they're recorded correctly in your financial statements.

Absolutely.

So now let's give people some things they can look for.

Not things we want them going into QuickBooks and trying to repair themselves today, but warning signs that might tell them, "I should probably look more closely at my payroll setup."

What should people be looking for?

Every payroll withdrawal should not be categorized entirely as Payroll Expense.

Large payroll liabilities that continue to grow month after month.

Old payroll liabilities that nobody can explain.

Particularly when you get some state taxes that nobody has any idea how they were owed, how they got calculated, and they're sitting on the Balance Sheet.

Nobody understands how to resolve them, whether a state is owed money, or whether there's a letter coming.

Multiple wage or payroll expense accounts that appear to serve the same purpose.

Retirement plan payments that don't appear to reduce the retirement liability.

Payroll numbers in QuickBooks that don't agree with payroll reports.

Payroll expense that doesn't seem reasonable compared with your actual staffing.

And payroll that reconciles to the bank but still doesn't make sense on the financial statements.

A reconciled bank account does not automatically mean the payroll accounting is correct.

No, absolutely.

We've been talking about reconciling your bank account, but the cash may be right while the allocation is wrong.

Oh, that's so good, Papa.

I actually want to call this out because we're making a distinction with this podcast, and I think it's important.

We've spent a lot of time working through the mechanics of payroll, looking at individual payroll reports, matching exact checks, determining the right wage amounts, separating withholdings, Social Security, Medicare, state taxes, retirement liabilities, and then making sure everything matches the bank.

We could turn on a screen recording and walk people through every one of these entries.

But that's not what we're doing on this podcast.

The goal of this podcast is to help you understand what payroll is doing, what your numbers mean, what questions you should be asking, what warning signs you should recognize, and how to make better decisions using QuickBooks.

The implementation is a different level of learning, isn't it, Papa?

Absolutely.

Inside the course, that's where we can slow down and actually work through the mechanics with you.

How to read the payroll register.

How to identify the different pieces.

Which accounts are expenses.

Which accounts are liabilities.

How payroll gets recorded.

How payroll payments clear those liabilities.

How the bank transactions should match.

What to do when historical payroll is missing.

How to troubleshoot payroll that was recorded incorrectly.

And most importantly, give people exercises to learn how to do it themselves.

I think it's so critical.

Somebody may say, "I'm not responsible for payroll."

Oh, yes you are.

You are.

I love that distinction here.

We teach you how to understand the problem, and the course will teach you actually how to do the work.

Because if you don't understand what's supposed to happen first, learning where to click isn't really going to help you, is it, Papa?

No.

So many people that we've helped are hands-on learners.

If you're able to feel it, touch it, and understand it, then you're going to be miles ahead.

Particularly if you fix your own mistakes.

Lay the foundation.

That's where everything is built on.

Okay, so if somebody remembers only one thing about this episode, Papa, what do you want it to be?

Payroll is not one transaction.

Yes.

If I'm honest, I think I have always been guilty of this.

In my mind, as an employee, I see the one number that shows up on my check, and I think that is what my employer was taking out of essentially their bank account to pay me.

Even though I have, through various jobs, gotten things like matching, 401(k), stock options, or whatever the case may be.

Let's just say Apple, when I worked for Apple. Those were some of the options there.

I knew that money came from the employer, but I didn't think about all these other liabilities.

I think you as an employee, and me as an employee, oftentimes we're thinking about other things.

Oh, yeah. Absolutely.

We're thinking about, "I've got to get up and be at work at 7:30."

"I've got to make sure I clock in."

"I've got these meetings."

"I've got these deadlines."

The last thing we're thinking about is the mechanics behind payroll.

Definitely not.

We just expect it to work flawlessly and show up so we can pay the mortgage or rent, buy groceries, or whatever the case may be.

Until it doesn't.

Until it doesn't work, and then there's an issue.

Right.

Then I'm on the phone trying to figure out what happened.

Money.

Where's my money?

Yeah.

End of the day, I think that's probably what it's all about.

And that's a perfect place to wrap this one up, Papa.

Another great, action-packed episode that really delivers for our listeners, and I love that that's what we're doing here.

We are heading towards 8,000 downloads for this podcast in our first year of podcasting.

That has been remarkable, and we're not even done yet.

This has just been an incredible journey and an incredible ride that we have enjoyed tremendously.

I really feel like our listeners have gotten so much from this podcast, which is quite exciting.

If you've been listening today and realizing that you're not completely sure whether your own QuickBooks is giving you an accurate picture of payroll — or frankly, whether some of the other areas of your QuickBooks are set up correctly — we've created a free resource to help you figure out where you stand.

It's called the QuickBooks Clarity Scorecard.

It walks you through the major areas of your QuickBooks and helps you identify where things are working and where you may need some attention.

We will put a link in the show notes so you can take the scorecard for free.

It's such a great resource.

If you haven't yet downloaded it and used it, what are you waiting for?

Or you can also go to our website at LeeDavisAndCompany.com, and you can access it there as well.

And remember, you guys, the goal isn't just to have transactions inside QuickBooks.

The goal is to have QuickBooks giving you information you can actually trust and use to run your business.

That is what this is all about.

That is one of the reasons you use QuickBooks — so you have a better picture of your business as a whole, and you can make actual decisions based off what QuickBooks is giving you back.

Papa, thank you so much for walking us through this one.

It was so good.

And again, you bring the fire. Always bring the fire.

You're welcome, Erica, and it's been fun recording together today.

Being in Canada and actually doing this together, and hopefully this one actually recorded because our last live one did not.

So I'm just very prayerful that happens today.

It's been fun. And thank you.

So good.

You guys, thank you so much for listening to QuickBooks Mastery for Small Business Success.

We'll see you next week.

Bye for now.

Thanks for tuning in to QuickBooks Mastery for Small Business Success.

If you enjoyed this episode, hit Subscribe and stay connected with us at LeeDavisAndCompany.com.

We know QuickBooks can be overwhelming, so we've put together a free resource to help you get started right away.

Grab your copy at LeeDavisAndCompany.com, and when you do, you'll also get access to our VIP email list, where we share exclusive QuickBooks tips, business strategies, and support.

And we'd love to hear from you.

If you have a QuickBooks question or a business challenge, send it our way at [email protected].

We might feature it in a future episode.

We're here to help you simplify QuickBooks and grow your business, one step at a time.

See you next time.