Journal entry for salary paid is Debit to Salary Expense because increases the salary expense account, reflecting the cost incurred for employee compensation Credit to Cash/Bank because decreases the cash or bank account, reflecting the outflow of cash. When a business pays salaries to its employees, it needs to record the transaction in its accounting records. Salaries are an expense for the business and need to be accurately reflected in the financial statements.
Key Concepts
- Salary Expense: The cost incurred by a business for compensating its employees.
- Cash/Bank: The account that decreases when salaries are paid.
Journal Entry for Salary Paid
When salaries are paid, the following journal entry is made to record the expense:
Example Scenario
Assume a business pays ₹100,000 in salaries to its employees on 01-09-2023.
Step-by-Step Journal Entry
- Record the Salary Payment
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-09-2023 | Salary Expense | 100,000 | Record salary expense | |
| 01-09-2023 | To Cash/Bank | 100,000 | Payment of salaries |
Explanation
- Debit to Salary Expense: This increases the salary expense account, reflecting the cost incurred for employee compensation.
- Credit to Cash/Bank: This decreases the cash or bank account, reflecting the outflow of cash.
Alternative Scenarios
Salaries Payable
If the salaries are recognized as an expense but not yet paid, they are recorded as a liability (salaries payable) until the payment is made.
Example: Salaries of ₹100,000 are accrued at the end of August but paid on 05-09-2023.
Journal Entry to Accrue Salaries (31-08-2023):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 31-08-2023 | Salary Expense | 100,000 | Accrued salaries for August | |
| 31-08-2023 | To Salaries Payable | 100,000 | Salaries payable |
Journal Entry to Pay Accrued Salaries (05-09-2023):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-09-2023 | Salaries Payable | 100,000 | Payment of accrued salaries | |
| 05-09-2023 | To Cash/Bank | 100,000 | Payment of salaries |
Conclusion
Recording salary payments accurately ensures that expenses are properly reflected in the financial statements. Whether salaries are paid immediately or accrued and paid later, it’s essential to follow the correct accounting treatment.