Is your start-up small business postponing paychecks? If your new company has – or hopes to win – awards paid with federal government funds, accrual accounting and your customer require that activity be recorded in the general ledger as incurred, not when paid in cash.
Especially if your company has a cost-reimbursable award, it follows that recording and invoicing (or vouchering) for Labor necessitates recording Payroll. Record all gross Payroll, proportioned to Jobs or contracts based on timesheet hours. Deduct employee-paid taxes, insurance premiums, and other deductions. Expense employer-paid taxes and fringe benefits. For example, Paid Time Off is expensed as earned, not when taken. The employer owes the employee that earned Time Off and incurs a Liability for it.
Record gross payroll as direct Labor costs to contracts and other Jobs and as indirect expenses, such as G&A Labor. The sum of all Labor equals all gross pay, based on all worked hours.
The net pay of each employee can be used as that employee – and the Company – choose. Instead of paying the net pay in cash, the “cash out” and subsequent “cash in” can be a journal entry transaction. No cash (for net pay) need be paid. Instead, the reduction in Company cash can be offset by an increase in employee loans to the Company, stock or other Equity in the Company purchased by employees, or some other “sweat equity” account.
The company can postpone outlay of any or all of the net-pay cash from paychecks. The company may not refrain from recording payroll while recording Labor as earned. Want the specific debits and credits for delayed paychecks? Please download the “Paycheck Delay” to learn affected (example) accounts.