How to Accrue Payroll...and Why It's the Most Important Monthly Task You are Ignoring!

The first time I heard anyone use the accounting terms "accrue" and "accrual", I had a mild panic attack. But, trust me... it is really not a hard concept to grasp. More importantly, by taking the concept of accrual into account, you can produce a monthly Profit and Loss Statement that is infinitely more accurate, especially as it relates to your payroll costs.

To accrue payroll is simply to recognize that the end of a weekly or bi-weekly payroll does not usually coincide with the end of the month, and therefore an "accrual" is necessary to recognize those payroll expenses that occurred in the current month that otherwise would not be recorded till the following month. Don't fret, we will explain by example in short order.

Why the Need to Accrue Payroll

First off, why is there a need to do anything at all as it relates to your payroll entries into QuickBooks? The answer is simple. If you are like 99% of restaurant owners or operators, you are evaluating your financial performance based on a "monthly" profit and loss statement. On the other hand, you are most likely processing your payroll on a weekly or bi-weekly basis. The math is straightforward...most months will consist of 30 or 31 days of revenue and corresponding expenses, but will only account for 4 weekly or 2 bi-weekly payrolls, in both cases representing only 28 days. You are therefore regularly understating your true payroll cost by 7-10%. If you process payroll every two weeks, then two months each year will include an extra payroll, and in those months your total payroll costs will be grossly overstated by as much as 40%!