This is Not the issue: "Ok, if the employee and the employer weren't the same person"
By Definition, they are Not the same Person. You keep forgetting this. The Employer is the Entity. Sure, the employee has to work for the entity, but that is The Entity. The Human is doing the work. The Employer is the Entity. The entity is not a Person. It's The Corporation.
They are Never the same Person. The Human person is wearing two different hats at different times: Representing the Employer, or Being the Employee.
The bookkeeping belongs to the Business, the Corporate Entity. It doesn't belong to the Person, Personally. The Bookkeeping is the Business, which then reports the End Results to the Shareholders.
"So basically the liability only applies until the funds are sent to the retirement plan brokerage then?"
You use Liability accounting when there are Accrued amounts not yet sent in, to show you need to Pay It Later. Example:
The Paycheck has employer expense and employee withholding. They both flow to Liability, so that the employer expense is already in the P&l, as is the employee's Gross Wage as expense. The amount the employee did not get to take home is included in the employer's Liability payment, since both amounts were held as Liability to be paid later. That makes it Cash Flow, later, and not Expense, when the Banking happens later.
"If that is the case, then what I have currently is a tracking asset that is not really an asset, and a tracking liability that is not really a liability. To zero those out, I would then debit the liability and credit the asset in a journal entry.'
Or, remove your Wrong entries entirely.
Paycheck Gross wages for 40 hours this week at $10 = $400
I don't get to take that home.
The Employer holds back my taxes and my share of Retirement as Liability.
The paycheck processing results in the program computing and posting Employer taxes and employer share of retirement and anything else we put into payroll processing.
Now, the Banking that happens right away is Employee gets their takehome pay.
Later, we Pay Liabilities, as the taxes and retirement funds, and that clears out the Liability.
The only asset tracking here is all of the Bank Payments that get made = funds Out.
