Salary payable refers to the liability of the company towards its employees against the amount of salary of a period that became due but has not been paid yet to them by the company and it is shown in the balance of the company under the head liability.
Salary Payable Definition
Salary payable can be attributed to the type of payroll journal entry that shall be used to record in the books of account the compensation which shall be paid to the employees. It is usually included in the current liabilities on the balance sheet as it is expected to be paid within one year.
Below is the basic journal entry that shall be passed in the books of account for accruing the salary payments.
And upon payment of salary, below journal entry shall be made.
Types of Salary Payment Journal Entries
The major kinds of payroll or salary payment journal entries can be:
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For eg:
Source: Salary Payable (wallstreetmojo.com)
#1 – Initial Recordation
The main salary journal entry will be recording for the initial payroll. This entry shall record or recognize the gross salary or gross wages that are earned by employees, along with the withholdings from their paycheck, and if any additional taxes would be owed to local authorities or government by the firm. These scenarios have been discussed in the examples above.
#2 – Accrued Wages
There may be accrued salaries or wage entry, which shall be recognized or recorded at the end of every accounting periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more, and that might be intended to recognize or record the salaries or wages amount that is owed to employees of the firm but has not been paid yet. This journal entry will then be reversed in the next accounting period so that the initial recognition or the initial recordation entry can take its place. This entry also can be ignored or avoided if the salary or wage amount is not material.
#3 – Manual Payments
An organization or the firm may, on a given occasion, pay to employees’ manual paychecks, either because of employment terminations or any other pay adjustments (e.g., any retrospective amendment in the law, causing an outflow of additional wages to the existing employees for prior periods).
Examples of Salary Payable Journal Entries
The following are examples of salary payable
Salary Payable Example #1
Vanilla Bond Private limited company incorporated in the US has just started the business of brokerage with equity capital of $1.5 million. It has recently hired Regina as an accountant to the firm. She was asked to make journal entries for the following salary payable scenario in the accounting software.
Consider the following details of salary and taxes, which is due to the 1st of April; you are required to pass journal entries for accrualJournal Entries For AccrualAccrued expense Journal Entry is the journal entry passed to record the expenses which are incurred over one accounting period by the company but not yet paid actually in that accounting period.read more in the books of account of Vanilla Bond Private limited.
Solution:
The journal entries for the above example as on accrual in books of account would be as follows:
Salary Payable Example #2
Continuing with the above example and details, consider now that Vanilla Bond Pvt Ltd pays its employees salary on every 29th of the month via NEFT from Chase Bank account. You, as the accountant of the firm, are required to post the journal entries while making payment of salary in the books of account of the firm.
Solution:
The salaries payable journal entries for the above example as on the date of payment in books of account would be as follows:
As it can be noted that all the payables account has been cleared to 0 since they were paid out. And finally, while posting a retained earnings journal entry, the salary expense that was sitting with debit balance will be credited, and the Retained earnings account will be debited. After that, salary expense a/c will also be cleared out to 0 balance at the end of each month.
Important Points
- There are always two types of the account involved; the first one is an expense accountExpense AccountExpense accounting is the accounting of business costs incurred to generate revenue. Accounting is done against the vouchers created at the time the expenses are incurred.read more, and another would be a liability account, as stated in the above examples.
- The taxes mentioned above are not mutually exclusiveMutually ExclusiveMutually exclusive refers to those statistical events which cannot take place at the same time. Thus, these events are entirely independent of one another, i.e., one event's outcome has no impact on the other event's result.read more, but there could be more variables or less depending upon which state rules your organization falls in. However, despite that, the treatment would remain the same.
- Further, when the salary is paid, it can be paid via various methods, which include Bank, Cash, Online modes, etc. and the same has to be entered in the journal entry.
- All the Taxes account types like Social security, State Income tax, Health Insurance, etc. payables accounts are created to record the withheld amounts and reconcile the same with relevant tax authorities.
- Medicare and Social Security will not be recorded or recognized as payroll tax or salary expenses by the firm or the company or by the business as those will be paid by an employee of the company from their paycheck by deducting those amounts.
- Payroll taxes are those which include employer’s contribution and not employee’s contribution.
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