Management to decide to pay the April salary on the 1 st day of the month to motivate the employees to work hard for the company. The employee needs the cash to go on holiday. However, on 01 April the staffs request to the owner to pay the salary in advance as it is a national holiday during the month. Example 2Ĭompany XYZ always paid salary expenses at the end of the month. Advance salary will be removed from the balance sheet as well and they do not need to pay the employees again. When the company enjoys the benefit from staffs’ employment, so they record expense into the income statement. When the employees have completed the work for company, they need to reclass the advance salary to salary expense for the month by: Account Debit Credit Salary Expense $$$ Advance Salary $$$ They need to reverse the advance salary to salary expense at the end of the month or the time which employee completes the work for company. The company does not record expenses as they do not yet consume the employee work yet. The transaction will decrease the company cash when paid to employees and increase the advance salary which is the current assets on balance sheet. Account Debit Credit Advance Salary $$$ Cash $$$ The company needs to make journal entry by debiting salary advances and credit cash to employees. However, the company may pay the employees in advance if there are any special requests. Most of the company pays employees at the end of the month or even the beginning of next month. The salary expense $ 11,000 will appear on the income statement and cash $ 11,000 will deduct from the cash account on balance sheet. Account Debit Credit Salary Expense 11,000 Cash/Salary payable 11,000 Please prepare the journal entry for the January salary expense.Īs the company makes payment at the end of the month, so they can make journal entry by debiting salary expenses and credit cash of $ 11,000. It increases from prior month due to new staffs. On 31 January, they pay a salary expense of $ 11,000. They usually pay the salary at the end of the same month. Every month they need to spend around $ 10,000 on the salary expense. Journal Entry for Salary Expense ExampleĬompany ABC employs many staffs to work in various departments. The salary payable will be reversed when company pays cash to the employee. If the payment is made in the following month, they can use the salary payable account. The company will record cash if they paid the employee on the same date. Salary expense will impact the income statement and similar to other expenses it will reduce the company profit. Account Debit Credit Salary Expense $$$ Cash/Salary payable $$$ It is not necessary to wait for the cash payment.Īt the end of the month, the company should make journal entry by debiting salary expenses and credit cash or salary payable.
As we know, the recording in the financial statement is based on the accrual basis, so the revenue and expenses must record regarding their occurrence. Journal Entry for Salary ExpenseĬompany records salary expenses in the monthly income statement regardless of the payment. And it is the big part of the expense for most of the company which will present in the income statement.
For a small company, the payment process can be handled by the accounting department or the owner himself. This expense is managed by the humane resource department for a big company. In general, the total salary that the company paid to employees is mostly fixed, it only a small change due to new recruit or staff resign. Some employees may be promoted to a higher position which is a higher salary as well. The salary is mostly fixed from month to month, however, the company can increase it once per year to motivate the employee to work harder and achieve higher targets.
The company needs to pay fixed monthly expenses unless there are bonuses or increments. In exchange for their services, company needs to pay the monthly salary based on their work complete and level of competency.
The company usually recruited employees to work in various departments such as sales, production, accounting, and so on. Salary is the expense that company paid to the employees in exchange for employment over a period of time.