Salary Payable with Journal Entry Examples in Detail

 

Salary payable refers to the amount of salary that a company owes to its employees but has not yet paid. It represents a liability on the company's balance sheet until the salaries are actually disbursed. When a company recognizes that it owes salaries to its employees, it records a salary payable entry in its accounting records.

Here's a detailed explanation along with journal entry examples for better understanding:

Journal Entry for Salary Payable:

1. Recognition of Salary Expense:

• When the company incurs the cost of salaries for its employees, it recognizes the salary expense. This is typically done at the end of the accounting period or when the salaries for that period are due.

Journal Entry:

                Salary Expense Dr. To Salary Payable

1. • • Debit Salary Expense: This represents an increase in expenses and is recorded on the income statement.
     • Credit Salary Payable: This recognizes the obligation to pay salaries in the future and is recorded on the balance sheet as a liability.

2. Payment of Salaries:

• When the company actually pays the salaries to its employees, the salary payable is reduced, and cash or bank account is decreased.

  Journal Entry:

            Salary Payable Dr. To Cash/Bank

1. • • Debit Salary Payable: This reduces the liability on the balance sheet as the company is no longer obligated to pay those salaries.
     • Credit Cash/Bank: This shows the outflow of cash or a reduction in the company's bank balance.

Example:

Let's say a company has incurred $10,000 in salaries for the month of December, but it hasn't paid them yet.

1. Recognition of Salary Expense:

Salary Expense $10,000 To Salary Payable $10,000

1. • Salary Expense (Debit): $10,000 (Income Statement)
   • Salary Payable (Credit): $10,000 (Liability on the Balance Sheet)

2. Payment of Salaries:

Salary Payable $10,000 To Cash $10,000

1. • Salary Payable (Debit): $10,000 (Liability on the Balance Sheet)
   • Cash (Credit): $10,000 (Asset on the Balance Sheet)

This demonstrates the process of recognizing salary expenses and subsequently paying them. The salary payable account acts as a temporary placeholder until the actual payment is made.