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Note: I'm currently using cash basis accounting.

Just recently I've started using QuickBooks Online to keep track of my profit and loss as well as pay my employees. The problem I'm facing is that even though my business is cash basis, when I run payroll, the software accounts for the wages and liabilities automatically.

For example: If I was to run payroll near the end of the month, QuickBooks would show that I've spent [X amount of money + payroll expenses] for that month. Where as my actual bank balance will show only the amount of payroll expenses that have actually been withdrawn from the account. Which in most case will be different because not all employees will cash their cheques before the beginning of the next month.

Up until now I've only ever had one business chequing account for all my transactions.

Is this normal?

OR

Should I open another separate account with the bank using it solely for payroll expenses?

For example: Every time I run payroll using QuickBooks I would simply transfer the amount of payroll expenses into the newly made account (from which all employee pay cheques would be withdrawn). This way my chequing and QuickBooks account balances would match.

Thanks in advance for any help.

closed as off-topic by Chris W. Rea, JoeTaxpayer Aug 25 '15 at 19:06

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If it is more convenient for you - sure, go ahead and create another account.

Generally, when you give someone a check - the money is no longer yours. So according to the constructive receipt doctrine, you've paid, whether the check was cashed or not. The QB is reflecting the correct matter of things. It doesn't matter that you're cash-based, the money still laying on your account because you gave someone a check that hasn't been cashed - is not your money and shouldn't be reflected in your books as such.

  • Thank you for your answer. After a bit more research I'm planning on creating another account unless some one is able to give a good reason not to. But in response to your comment on "It's not your money and shouldn't be reflected in your books as such". I was under the impression that the whole point of cash basis accounting is to only account for a transaction once the money has left your hands. Is there an exception when it comes to a cheque you've already written and given to someone without them cashing it yet? – Paul Warnick Aug 25 '15 at 16:17
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    @PaulWarnick: It might be better to think of it as accounting for the transaction once you have "made the payment", rather than (as it would be under accrual basis) once the payable event has occurred. Once you have given the check, you have made the payment. Checks are considered "cash" for these purposes (see for instance this page). – BrenBarn Aug 25 '15 at 17:20
  • @BrenBarn Thank you, thinking of difference between the accounting types this way makes a lot more sense. – Paul Warnick Aug 25 '15 at 17:36
  • @PaulWarnick once you gave someone a check - the money has left your hands. It is no longer your money. – littleadv Aug 25 '15 at 18:07

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