Payroll at Year End
If you report on the accrual basis, GAAP (Generally Accepted Accounting Principles) require you to record all your expenses in the time frame it is incurred. This means that you should be accruing payroll expenses for the remaining days worked in December, after the last paid period. So, that means, if you work Monday thru Friday and if you pay weekly, on Friday, for the prior week; you will need to accrue payroll expenses for Dec. 21st thru the 31st. (If you pay on Wednesday, for the prior week, you will only need to accrue for Dec. 28th thru the 31st).
Another wrinkle is that tax law requires the paychecks you normally would pass out on Friday, Jan. 1st (a holiday) that are passed out on Thursday instead, MUST be dated Dec. 31st.
Here's what that does to your record keeping: The full amount of the Friday payroll including the taxes must be reported on 2009 W2's, even though 20% of the pay (Friday) is for 2010! (This reflects the date employees have "constructive receipt" of their pay.)
GAAP is the opposite! You can not record the 20% payroll expenses in 2009, but must record them in 2010. Therefore you must record that amount as Prepaid Wages/Taxes and expense it on January 1st 2010.
If all these Journal Entries are giving you a headache, give us a call at 760-722-6839 or visit http://tinyurl.com/ybg6fy2 and enter "Payroll Yr End" in the Additional Comments box and we'd be happy to help!
PS: don't forget to download and install your software payroll updates BEFORE processing that first payroll in January!!