When you're doing your own bookkeeping, dealing with sales invoices and purchase invoices can be quite straightforward, but if you want a true picture of how profitable your business is you need to make sure you include what, for most small businesses, can be the biggest cost. The wages bill ...
There are quick and dirty ways of including these in the accounts, or there is the proper accounting way, both of which I outline below:
- Proper Accounting Way
You will need to ask whoever does your wages to send you a report of the wages breakdown each month, often called a payment summary or payroll activity summary, and it can help if you ask for the P32 (which tells you what you owe the HMRC).
You can then enter a journal each month, as I have blogged about before here, then when you pay your wages or the HMRC or the Pension people you post the payments from your bank to the balance sheet codes used in your salary journal.
- Quick and Dirty method
Sometimes, if the person doing your payroll is not good at sending reports, you are not confident in posting your own journals, or you just want to record the money spent and let your bookkeeper or accountant do the rest, the quick and dirty method might be best for you.
In this method you post all the payments out of your bank account to one profit and loss code for salaries or wages, then at your year-end let your bookkeeper or accountant know the PAYE/NI and pension payments due at the year-end and they can be adjusted into your balance sheet for your year-end accounts.
The amount left in the profit and loss code you have used will be the total cost of wages for your company for one year. This is not a perfect method, but can be the neatest way you can keep a track of your wage expenses if you are not in a position to follow the proper accounting way.
If your wages postings in your accounts have got into a bit of a mess and you need help working out what you need to do to sort it out, please get in touch for one of my handholding session.
If anything I've written here resonates with you, call me on 01604 420057 and let's see how we can help you.