You have entered expenses into your account by creating payslips, which increased your wages expenses
But you never used cash from the business to pay these
You have two choices
1 Delete the payslips you entered but never paid using money from the business
Or
2 Enter the money you used to pay the employees as cash received and then record the payment to the employees as payments out
You are actually using false accounting - you can not use your accounts to account for cash payments made from moneys never received by the business.
You will have to correct your accounts as above and stop trying to use unrecorded cash for business purposes - this is illegal in most countries and probably yours as well
This is impossible. You need to put effort in and clear the liabilities by recording payments agains them (new payment). As you seem to have made payments and registered these in a Salaries expense account it means that your bank account was reduced by the paid amount and the Salaries expense account increased by that same amount. However you also say you issued payslips and if these were as I already explained assigned to a Payslip and the same Salaries expense account then you would have 2 times the amount in that expense account, one as Payslip expense and one as direct Expense. So your business would have for example Paid $1,000 and assfin that payment straight as Salaries expense and also created a Payslip for $1,000 so in essense doubling up the expense account, reducing the bank by $1,000 and increasing Liabilities (Employee clearing account) by $1,000.
To correct this you need to one-by-one assign a payment to each Payslip, the easiest is to View each Payslip and select New Payment. Once done you can batch delete all the Direct Payments in Salaries Expense so that only the Payslips are shown.
Alright @eko and @Joe91 here is what I will do, please advise if that is fine:
1.I will delete the journal entry i made to clear the Employee clearing account into Retained earnings
2. I will create new payments for each of the payslips
3. I will delete all the payslips created.
I only have one concern/questions, can i leave it like that for now? ( meaning that not to have payslips and only payments) and for future for each payslip, I will create payments?
I wanted to have payslips shown but i need to delete them after making payments becuase it affects my cash & cash equvilants.
Having missed 15 posts overnight, I am just catching up with this thread. @Bayar_Shahab, I gave you a recommendation, which was to explicitly describe your actual situation in the real world. You still have not done that completely, despite the questions from @Joe91 and @eko, two very knowledgeable forum members.
I made no disparaging remarks whatsoever. And I could not provide constructive input without specific information, which you still have not provided. We do not know how you paid your employees, if indeed you did, nor how you recorded the payments, if you did.
No, it definitely is not.
You are missing the point. Finding the solution requires that we identify the error(s). Resolving your problem absolutely requires correcting the error(s) first. In fact, correcting the error(s) will probably fix the problem up to the current date. Fixing the problem for the future will require changing your procedures.
How interesting, @Bayar_Shahab. You marked my post as the solution, when all I did was ask for information. I do not see that anyone has been able to resolve your issue due to lack of information.
Thank you for your responses, very helpful and much appreciated. You are right, the employees were paid from unrecorded cash as we thought the payslips would be considered as payments but now it is clear that we need to make the payments and payslips are only for the sake of visibility plus to count liabilities we have for the employees. So duplicate payments never happened you are right.
In addition, the reasons i asked if i can delete payslips and only have previous salaries recorded as payments is for teh P&L report and duplicate expense accounts. As currently, under expenses, i see wages and salaries and have affected the P&L, I was afraid if i make payments for each of the payslips, i will have additional expenses as salaries counted in the P&L, if that is not the case then i can keep the payslips as well, what do you advise?
I have not marked it as solutions, should have been a mistake, Eko and Joe are indeed very helpful and have made things much more clear and we are almost getting somewhere. thanks Tut.
We already explained this and you are advised to create a test business and do things properly. In accrual and double entry accounting the issuance of a payslip is similar to a purchase invoice. It will immediately as it must record the expense and as it is not yet paid from bank or cash equivalent is balanced with a liability in the Employee clearing account. When a payment is made from bank or cash equivalent against the Payslip then the only thing that would happen is that the liability is removed and the bank or cash equivalent account reduced. It will not affect the P&L.
As mentioned also you should never delete the Payslips because it would reduce the Salaries account in the Profit and Loss account.
This would be considered illegal practice by most if not all tax authorities. How would they be able to audit your company and also how would they know who earns what. If these are employees or people that do paid work they are also personally liable for income tax. And depending on where you operate you may be obligated to not only run Payee but also pay for other elements as part of Payee such as pension contributions.
So not only should you immediately start fixing the problem as we explained on how, you also as @Tut advised change your procedures. I strongly advise you to consult an accountant. Yes they may cost you some money but they will save your business from getting fines because of illegal practices.
Please note that everywhere in the world tax authorities not only charge large fines for tax evasion (the practice of paying unrecorded cash (you earned that somewhere) to employees), but also are first claimants in case of bankruptcies.
Here is what i did after your advise, I have created a test account with mirror of my accounting.
Deleted the journal entry
Added the unrecorded salary paid as cash into cash account with equivalent amount of the salaries payable
Added new payments for each of the payslips
Finally, the numbers are correct and similar to previous one but followed the correct and legal accounting procedure as advised, thank you very much.
However one thing i have noticed, the payslips are still in the retained earning account, is that fine? I suppose wages and salaries are earning accounts and payslips by default go there.
The āRetained Earningsā account is where the cumulative profit or loss of the business is kept
Yes, it is normal that all transactions which affect the profit/loss, including payslips, are recorded here
Thanks for your responses, I am a bit confused, Eko you are saying that is not fine to have payslips in the retained earning accounts and Joe says it is normal and fine?
I was too quick to answer but this was related to your statement that you assigned the Payslips to Retained earnings, which you should not have. However you now seem to have corrected this by deleting the Journal Entries and making payments against the payslips. @Joe91 is right that if you followed the correct procedures that they show in retained earnings be it on the debit (i.e. losses) side.
If I might make a suggestion, you could have a look at www.accountingcoach.com to learn the basics of double entry accounting.
It is not necessary to be an expert accountant to use Manager correctly but a basic understanding of accounting will help to get the most from the software
Thanks @eko , yes that is correct, I have deleted the journal entry, made payments for each employee and all the payslips are now showing in the retained earnings as debit(losses)
