Q: How do I enter Canadian Payroll Deductions in Clarity Accounting?

Currently, our accounting software does not include Canadian Payroll Tables.  However, we provide a cost effective solution for small businesses to keep track of payroll expenses and deductions by allowing you to add payroll deductions as expenses or adjustments.  If you are new to running a small business, you will need to do some research on Canadian Payroll from the CRA website and how to electronically remit taxes to the CRA.

If you operate a business in the USA, please refer to our help file Entering Payroll Deductions - USA.

One great thing about the CRA is that they have a tool called the Payroll Deductions Online Calculator available for small business owners to get all the payroll deductions calculated online without having to do the work manually themselves.  If you select the “Determine Gross Income” option and enter the gross salary of your employee in a given pay period (i.e. $1000 bi-weekly), then the payroll deductions online calculator generates a very nice printable table giving you a net pay amount with all the deductions included.

Instructions for Entering Canadian Payroll Deductions in Clarity Accounting

1. Create payroll and expense accounts by going to the “Accounts” under the “Setup” section on your left navigation
   
2. Scroll down to the liabilities section.
   
3. Create your payroll deduction accounts by typing in the name and the description of the deduction.  Also use select “Taxes and Remittances” as the type of Long term liability account you are creating.
   
4. For Canadian payroll deductions, you will need to calculate and remit “federal tax deductions”, “provincial tax deductions”, “CPP deductions”, and “EI deductions”.  There may be other applicable deductions you would like to track such as “requested additional tax deductions” or “other amounts deducted at source”.  You may also use this section for to record other liabilities such as union dues and vacation pay.  Please ensure you click the “Add Account” link to add each account.
5. While still in the “Accounts” setup page, go under “Expenses” and add an Expense Account called “Employee Salaries”.
   
6. To enter these payroll deductions, go to the “Expense” section and enter the relevant data.
   
7. For the purpose of this help file, we would assume that Employee A has made $1000 (Gross Pay) in this pay period, please refer to the screen shot below:
   
   Please enter deductions as a negative number (i.e. $-79.72)
8. Note, to get the Tax and Remittances Accounts to show up under the “Expense Account” drop down, you will have to scroll down to the bottom and click “Show All Accounts” or simply type the account name into the text box (we have a search function that will allow you to find the accounts quickly).
   
9. After you click “Add” to add the payroll deduction expenses, you can click on “Edit” to view the summary of this transaction or click “Repeat” to repeat this transaction.  The “Repeat” function is great because you can enter multiple payroll entries in a row by simply changing the employee’s name “Vendor” and the deductions amounts.
   
10. You will be able to view deductions and pay history of your employees under the “Vendors” section.
    
11. You can also view total payroll deductions in the Balance Sheet section.
    
    
12. If you are an employer who is matching CPP contributions, you will have to create an expense account called “Matching CPP” and enter a separate expense transaction for your own records.  This is independent of the payroll entries and you would remit this amount to the CRA.

If manually submitting payroll remittances is something you would like to do for your small business, you can easily keep track of all your remittances and expenses inside Clarity Accounting.  You can try a 30 day free trial of Clarity Accounting with no obligations necessary to see how easy small business accounting can be.  After all, Clarity Accounting is created by Canadians with all the sales taxes like GST, HST, PST, and QST functions included.

Clarity Accounting Enter Income View

Online Accounting Software | Enter Income

This is the enter income view users will see as soon as they sign in and enter the “Dashboard” area.

It is split into 4 sections using horizontal tabs:

• Enter Income
• Enter Invoice
• Enter Payment
• Detailed

Users of our online accounting software can also use the Income link on the left navigation to go to an income specific data entry page showing all entries as data is being entered.

Using the “Enter Income” Tab

This section is mainly used for the purpose of entering income that has already been paid.  Examples of this type of income are:

• commission income from sales
• products and services paid by cash, credit card, or direct bank transfers

Components of an Income Record

• Date
• Customer
• Invoice / record #
• Payment Account
• Income Account
• Description
• Quantity
• Price
• Applicable Sales Tax

Terms & Payment Accounts

There are 2 ways income records can be recorded.  They can be recorded as “Paid” or “Unpaid”.

Paid income records generally refer to products and services that are paid immediately with cash, credit card, or direct deposit.

Unpaid income records are generally used for invoicing.  In an accrual / double ledger accounting system, when you invoice a client for your products or services, you are considered to have “earned” that income regardless of whether or not you are paid.  Invoices usually have a “payment term” associated with it, allowing customers to pay days after the initial invoice was sent.  Outstanding invoices are referred to as “Aged Receivables” in accounting terms.  Unpaid income records will also require small businesses to track down payments and entering payments into the accounting software when payments are received.  If for some unfortunate reason, an invoice was not paid, then it can be written off as “bad debt”.

To record income that is “Paid”, select the account into which the money was (or will be) deposited. For example, if you receive a cheque and deposit it into your checking account, you would select “Checking Account”.

Income Accounts

Income accounts are used to differentiate revenue from different sources of income that will show up in your profit and loss statement.  This is also a great indicator of which products or services are most profitable to your business.  When you first create a business with Clarity Accounting, you will be asked to fill in your income sources.  However, if you did not list all the income sources at the time you set up your business profile, you can always click on the “New Income Account” to add more income accounts.

For each component of the income, select an income account in order to categorize the income; this allows you to view the income you have earned broken down by account in the Profit & Loss report.

Entering Income Case Study:

Jane is a real estate agent who received $10,000 in commission income from Remax (the real estate agency she represents) on October 3, 2008 for the sale of a piece of property.  She is paid via direct deposit into her checking account.  There are no applicable taxes in this transaction.

Click “Add” after the data has been entered.

Multi-Currency Entries

If your company pays and accepts income in currencies other than your own default currency, please use the “Enter Invoice” tab for multi-currency options.

Available options after clicking “Add”

Edit

The edit option will bring you to a summary of this particular record, allowing you to change anything you need to change.

Repeat

This option allows you to “repeat” this transaction.  Many people use this feature if they are entering an income record with very similar elements such as same customer with the same payment and income accounts.  This allows users to make minor changes with date, description, or price without re-entering all the information.

Download PDF

A PDF of the transaction can be downloaded as an invoice or a receipt (with the balance due marked $0.00) depending on the nature of the transaction.  We allow users to add their own logo on the PDF download.  Please refer to the help file “Uploading logo to Invoices” for detailed instructions.

The purpose of this help file is to show Clarity Accounting users how to enter invoices as well as creating and downloading PDF Invoices.

Invoices can be entered right on the Dashboard or under the “Income” section on the vertical navigation bar.

Clarity Accounting Invoice View

This section is used for small businesses whose primary method of getting paid is through “Invoicing”.  Invoices are generally issued by businesses providing products or services to their clients.  An invoice usually consists of the following elements:

• Invoice Number
• Invoice Date
• Vendor Contact Information
• Client Contact Information
• Payment Terms / Due Date
• Income Account
  
• Quantity (number of items sold / number of hours worked)
• Price / Rate (cost per item / hourly rate)
• Subtotal
• Applicable Taxes
• Balance Due
• Pre-payments (if applicable)

Terms & Payment Accounts

There are 2 ways income records can be recorded.  They can be recorded as “Paid” or “Unpaid”.

Paid income records generally refer to products and services that are paid immediately with cash, credit card, or direct deposit.

Unpaid income records are generally used for invoicing.  In an accrual / double ledger accounting system, when you invoice a client for your products or services, you are considered to have “earned” that income regardless of whether or not you are paid.  Invoices usually have a “payment term” associated with it, allowing customers to pay days after the initial invoice was sent.  Outstanding invoices are referred to as “Aged Receivables” in accounting terms.  Unpaid income records will also require businesses to track down payments and entering payments into the accounting software when payments are received.  If for some unfortunate reason, an invoice was not paid, then it can be an expense written off as “bad debt” .

To enter a “Paid” invoice, select one of the rows with “Paid” in the second column, and the bank, cash, or credit card account into which the payment is deposited.  For example, if you received a cheque and deposited it into the bank, you would select your Checking Account.

To enter an “Unpaid” invoice, select one of the rows with “Unpaid” in the second column, and the number of days the receiver has after the invoice date to pay.  For example, if you receive a bill that has “net 30″ terms (due 30 days after receipt), you would select “30 days”.

Income Accounts

Income accounts are used to differentiate revenue from different sources of income that will show up in your profit and loss statement.  This is also a great indicator of which products or services are most profitable to your business.  When you first create a business with Clarity Accounting, you will be asked to fill in your income sources.  However, if you did not list all the income sources at the time you set up your business profile, you can always click on the “New Income Account” link to add more income accounts.

For each line item on the invoice/income record, select the income account that best matches that item, or add a new one if it doesn’t fit an existing category.

Sample Case Study:

Clarity Accounting recently demonstrated their online accounting software at a very successful Launch Party event put together by Bootup Labs.  They received overwhelming requests from bloggers and freelancers to integrate Clarity Accounting with Freshbooks.  This is because Freshbooks is an awesome online invoicing software and Clarity Accounting is an awesome online accounting software.  Freelancers thought such an integration would allow those who use Freshbooks to generate Balance Sheet and Profit and Loss reports within Clarity Accounting.

Creators of Clarity Accounting took user suggestions seriously and contracted Habitsoft, Inc. to implement the Clarity Accounting - Freshbooks integration.  It took Habitsoft, Inc. 40 hours of work to complete the project and Habitsoft charges an hourly rate of $100 / hour.  Habitsoft sends an invoice to Clarity Accounting with a 30 day term (payment of the invoice is due within 30 days of the date the invoice was created).  There was also a 5% sales tax applicable to this invoice.

This is how the data entry fields look like:

After Habitsoft clicks “Add”, it will be given several options:

Download PDF

Click this link to download a PDF of the invoice.  Users can add their own logo on the PDF invoice.  Please refer to the help file “Uploading logo to Invoices” for instructions on uploading your own logo.

Here is what the PDF invoice for this example looks like:

Please note: Addresses and contact information shown on the invoice will depend on how much information is included when filling out the Business Profile information as well as the Customer information when adding a new customer.  You can edit the customer information by going to the “Customer” link on the Dashboard under “Setup”.

Edit

The edit option will bring you to a summary of this particular record, allowing you to change anything you need to change.

Repeat

This option allows you to “repeat” this transaction.  Many people use this feature if they are entering an income record with very similar elements such as same customer with the same payment and income accounts.  This allows users to make minor changes with date, description, or price without re-entering all the information.

Entering Payments

When Habitsoft receives a payment from Clarity Accounting, it will have to enter the payment into the accounting system with an associated Bank and Income Account.  For detailed information on how to add invoice payments, please refer to the help file “Adding Invoice Payments”.

If you are a small business based in Canada.  We have all the Canadian taxes included in our online accounting software.  Since Clarity Accounting is based in Canada, we understand the complexity of the Canadian tax system.  All you have to do to make sure the tax codes will be automatically included is to make select your country as “Canada” when filling up the information for your Business Profile.

There are two ways to get to the Tax Configuration page:

1. From the “Taxes” link under the “Setup” section on the Dashboard
   
2. From the data entry box under “Sales Tax”
   

Tax Configuration

Many small businesses have to charge GST, HST, PST, and/or QST for goods and services sold.  When the tax settings are properly set up, Clarity Accounting will track the sales taxes payable / receivable for you when you sell goods and services.  For example, GST payable usually refers to the GST you charge your clients and later have to remit back to the government.  GST receivable usually refers to the GST you pay on expenses that you can file for the government to pay you back.

Tax Setup Instructions

1. Click on the check box on the top left hand corner under the “Sales Tax” heading that says:
   “This business pays or collects sales taxes in Canada”
   
   
2. If your business is registered for GST or HST, please click the check box and fill in the necessary information.  Your GST, HST, PST & QST number will show up on the PDF invoices created.
3. Click “Save”
4. When you enter your income or expenses, you should see all the taxes you have selected to be applicable to your business are included in the “Sales Tax” section:
5. Shortcut Keys: If you would like to speed up the data entry process, you are welcome to type in:
   g for “GST”
   p for “PST”
   B for both “GST” and “PST”

What does the “-5% GST” function do?

This function is mostly used when entering expenses.  For example, if you go out for a meal with a prospect that cost you $100 including GST, you would put the price as $100 and the tax as “-5% GST” or simply “-g“.  This just means that the subtotal of your meal actually came out to $95.24, but after adding 5% GST ($4.76), your meal had a total of $100.  This process simply allows our online accounting software to track the amount of “sales taxes” you are paying on expenses without you having to go through the process of doing that calculation yourself.

If you were to have a meal that had a subtotal of $100 and you chose the “5% GST / G” option, the meal would have a total of $105.00 with 5% tax included.

Reports

Reports on taxes payable and receivable can be found at the bottom right hand corner of the “Dashboard” or in the “Balance Sheet” section.

Additional Help

If you require additional help in how to create tax settings for other types of taxes, please contact us for further instructions.