Accrued salary Journal Entry refers to salary expenses that have been incurred but not yet paid by the end of an accounting period. This often occurs when employees have earned their salaries, but the payment is scheduled for a future date. Accrued salary is recognized as a liability on the balance sheet until it is paid.
Key Concepts
- Accrued Salary Expense: Salary expenses that have been incurred but not yet paid.
- Liability: Accrued salary is recorded as a liability in the balance sheet.
Journal Entry for Accrued Salary
Scenario: Accrued Salary at the End of the Accounting Period
Example: A business incurs salary expenses of ₹200,000 for the month of June 2023, which have not been paid by the end of the month (30-06-2023).
- Recognizing Accrued Salary Expense:
When the salary expense is incurred but not yet paid, you need to recognize it as an expense and a liability.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 30-06-2023 | Salary Expense | 200,000 | Record accrued salary expense | |
| 30-06-2023 | To Accrued Salaries Payable | 200,000 | Salaries due but not yet paid |
- Paying the Accrued Salaries:
When the accrued salaries are paid in the next accounting period, you need to eliminate the liability and reduce the cash or bank account.
Journal Entry for Payment of Accrued Salaries:
Example: On 05-07-2023, the business pays the accrued salaries of ₹200,000.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-07-2023 | Accrued Salaries Payable | 200,000 | Eliminate accrued salary liability | |
| 05-07-2023 | To Cash/Bank | 200,000 | Payment of accrued salaries |
Additional Examples
1. Accrued Salary at Year-End
Example: A business incurs salary expenses of ₹150,000 for the month of December 2023, which have not been paid by the end of the year (31-12-2023).
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-12-2023 | Salary Expense | 150,000 | Record accrued salary expense | |
| 31-12-2023 | To Accrued Salaries Payable | 150,000 | Salaries due but not yet paid |
Payment of Accrued Salary:
Example: On 05-01-2024, the business pays the accrued salaries of ₹150,000.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-01-2024 | Accrued Salaries Payable | 150,000 | Eliminate accrued salary liability | |
| 05-01-2024 | To Cash/Bank | 150,000 | Payment of accrued salaries |
Conclusion
Accrued salary accounting ensures that expenses are recorded in the period they are incurred, regardless of when they are paid. This is essential for accurate financial reporting and maintaining the integrity of financial statements.