Salary Payable Definition Examples Salaries Payment Journal Entries

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 into 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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#1 – Initial Recordation

The main salary journal entry will be recorded for the initial payroll. This entry shall record or recognize the gross salary or gross wagesGross WagesGross wages are the amount of remuneration paid to employees before any deductions like taxes, including social security and Medicare, life insurance, pension contributions, bonuses.read more 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 salaries payable

Salary Payable Example #1

Vanilla Bond Private limited company incorporated in the US has just started a brokerage business with equity capital of $1.5 million. It has recently hired Regina as an accountant for the firm. She was asked to make journal entries for the following salary payable scenario in the accounting softwareAccounting SoftwareWave Accounting Software, Akaunting Software, Slick Pie Accounting Software, GnuCash Accounting Software, xTuplePostBoks Accounting Software, Inv24 Accounting and Inventory Software, and NCH Express Accounts Accounting Software are among the best accounting softwares available.read more.

Consider the following details of salary and taxes, which is due on 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 employee’s salary every 29th month via NEFT from the Chase Bank account. You, as the firm’s accountant, are required to post the journal entries while making payment of salary in the books of account of the firm.

The salaries payable journal entries for the above example as on the date of payment in books of account would be as follows:

It can be noted that all the payables accounts have been cleared to 0 since they were paid out. And finally, while posting a retained earningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more journal entry, the salary expense sitting with the 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 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, including Bank, Cash, Online modes, etc., and the same must 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 taxPayroll TaxPayroll taxes are statutory deductions made by the employer from an employee’s regular salary and wages, and usually, such withholdings mostly have both employer and employee equal contributions. These taxes are collected by tax authorities from respective employers and paid for human welfare schemes, infrastructure development.read more or salary expenses by the firm, the company, or the business as those will be paid by an employee of the company from their paycheck by deducting those amounts.Payroll taxes include the employer’s contribution and not the employee’s contribution.