The outstanding salary journal entry is a simple but important concept in accounting. It helps businesses show salaries that they need to pay but have not paid yet. These unpaid salaries are expenses of the current period but will be paid later. So, the answer to what is the outstanding salary journal entry is: debit salary expense and credit outstanding salary or salary payable. This journal entry helps match salary expenses with the right accounting period, even if the payment is not made immediately. This article explains in detail how to pass the outstanding salary journal entry, with proper format and examples. It also helps you understand the meaning of salary outstanding journal entry, how it appears in the balance sheet, and how to account for unpaid salary.
How to Record Outstanding Salary in Journal Entry Format?
Understanding how to record outstanding salary is very important for students and business owners. Salaries that are due but not yet paid are a liability for the business. They are expenses for the current month or year. But if not paid, they become outstanding salary. The entry records this correctly in the books.
Meaning of Outstanding Salary
Outstanding salary means the salary that the business needs to pay to employees but has not paid yet. This happens when a company closes its books at the end of the month or year, and the salary payment is still pending. Even though the payment is pending, the company must record it as an expense for the current period. So, we must show this salary as both an expense and a liability. This way, we follow the accrual concept of accounting. The salary expense is recorded in the current period, and the salary payable journal entry shows the liability.
Journal Entry Format
The outstanding salary journal entry is a simple but important concept in accounting. It helps businesses show salaries that they need to pay but have not paid yet. When you need to record outstanding salary, follow this simple journal entry format:
| Particulars | Debit (₹) | Credit (₹) |
| Salary A/c | XXXX | |
| To Outstanding Salary A/c | XXXX |
You debit the salary account because it is an expense.
You credit the Outstanding Salary Account because it is a liability. This format is correct for any unpaid salary journal entry.
- The salary account shows the total expense for the company
- The outstanding salary in the balance sheet appears under “Current Liabilities”.
- This is a salary expense journal entry, even if no money has gone out.
- This format helps show true profit or loss for the business.
This format works for any business type—whether a small shop, factory, or office.
Why it Matters?
How to record outstanding salary becomes easy if you always remember to match expenses with the right period and treat unpaid amounts as liabilities. Recording outstanding salaries is important because:
- It shows true expense for the year.
- It shows how much the business owes to employees.
- It keeps your financial records correct.
- It helps create accurate profit and loss statements.
Outstanding Salary Journal Entry with Examples
Now that we know the format, let’s look at some real examples. These will help you understand how to apply this in real business situations. Each example shows how to write the journal entry when salaries are due.
Example 1: Salary Outstanding at Year-End
Let’s say a company pays salaries on the 5th of the next month. On 31st March, salaries for March have not yet been paid. The monthly salary is ₹50,000.
Journal Entry on 31st March:
| Particulars | Debit (₹) | Credit (₹) |
| Salary A/c | 50,000 | |
| To Outstanding Salary A/c | 50,000 |
The company records the salary as an expense for March. But since the salary is not yet paid, it becomes payable.
Example 2: Partial Salary Paid
Suppose the company paid ₹30,000 and still owes ₹20,000.
Journal Entry:
| Particulars | Debit (₹) | Credit (₹) |
| Salary A/c | 50,000 | |
| To Bank A/c | 30,000 | |
| To Outstanding Salary A/c | 20,000 |
This shows full salary as an expense and splits the payment into paid and unpaid parts. This is a journal entry for salary due.
Example 3: Next Month Payment
In the next month, when the salary is paid:
| Particulars | Debit (₹) | Credit (₹) |
| Outstanding Salary A/c | 50,000 | |
| To Bank A/c | 50,000 |
This clears the liability. It is not an expense now, as we already recorded it last month. This is part of accounting for outstanding salary.
From these examples, we understand:
- Always record salary expense when it is due.
- Record unpaid amounts as liabilities.
- Clear the liability when the company pays the salary.
These examples help understand salary outstanding journal entry, unpaid salary journal entry, and even accrued salary journal entry, as they all follow the same logic.
Difference Between Accrued and Outstanding Salary
Accrued Salary refers to the salary that an employee has earned during the accounting period but the company has not yet paid. It is recorded as an expense and a liability in the books. Outstanding Salary also means salary that is unpaid, but it usually refers to the salary that was due in a previous period and is still not paid. While both are liabilities, accrued salary relates to the current period, and outstanding salary often relates to previous unpaid obligations. Both must be recorded properly to ensure accurate financial statements.
| Basis | Accrued Salary | Outstanding Salary |
| Meaning | Salary earned but not fully due | Salary is fully due but unpaid |
| Used in | Adjusting entries | Closing entries |
| Timing | Before it becomes due | After it becomes due |
| Journal Entry Name | Accrued salary journal entry | Outstanding salary journal entry |
Though both have similar accounting treatment, you can still note the context.
- In some cases, the accrued salary journal entry happens mid-month.
- An outstanding salary journal entry happens at the month or year-end.
Still, both records:
| Particulars | Debit (₹) | Credit (₹) |
| Salary A/c | XXXX | |
| To Salary Payable A/c | XXXX |
Here, the salary payable journal entry is the same.
Same Accounting Treatment
Whether you call it accrued or outstanding, the accounting for outstanding salary is the same. Use it to follow the matching principle. You must show the expense in the right period and treat the unpaid amount as a liability. In short:
- Both mean salaries that are due or partly due
- Both use the same journal entry format.
- Both follow the accrual system of accounting.
- In exams and businesses, the words may be different, but the entries stay the same.
Relevance to ACCA Syllabus
Outstanding salary is a key concept in accrual accounting, which is an essential part of ACCA’s Financial Accounting (FA) and Financial Reporting (FR) papers. Students must understand how to record accrued expenses like unpaid salaries, ensuring that liabilities and expenses are accurately presented in financial statements. This directly links to topics such as adjustments, the matching principle, and preparation of financial statements.
Outstanding Salary Journal Entry ACCA Questions
Q1. What is the correct journal entry for outstanding salary at year-end?
A) Salary A/c Dr. To Cash A/c
B) Salary A/c Dr. To Outstanding Salary A/c
C) Cash A/c Dr. To Salary A/c
D) Outstanding Salary A/c Dr. To Salary A/c
Ans: B) Salary A/c Dr. To Outstanding Salary A/c
Q2. Which financial statement shows outstanding salary as a liability?
A) Statement of Profit or Loss
B) Statement of Cash Flows
C) Statement of Financial Position
D) Income Statement
Ans: C) Statement of Financial Position
Q3. Under accrual accounting, when should outstanding salaries be recorded?
A) When paid
B) When approved
C) When earned by employees
D) When cash is available
Ans: C) When earned by employees
Q4. What type of account is Outstanding Salary?
A) Asset
B) Expense
C) Liability
D) Income
Ans: C) Liability
Q5. In which section of the balance sheet does outstanding salary appear?
A) Current Liabilities
B) Non-Current Liabilities
C) Equity
D) Intangible Assets
Ans: A) Current Liabilities
Relevance to US CMA Syllabus
US CMA focuses on cost accounting and financial reporting, where accrued expenses like outstanding salary must be correctly recognized to match expenses with revenues. The topic helps in understanding timing differences and compliance with U.S. GAAP. It is tested in both Part 1 (Financial Planning, Performance, and Analytics) and Part 2 (Strategic Financial Management).
Outstanding Salary Journal Entry US CMA Questions
Q1. Under U.S. GAAP, how should outstanding salary be treated at period-end?
A) Ignore until paid
B) Record as a liability
C) Record as revenue
D) Capitalize it
Ans: B) Record as a liability
Q2. What principle requires the recording of outstanding salary before payment?
A) Revenue Recognition
B) Matching Principle
C) Conservatism Principle
D) Materiality Principle
Ans: B) Matching Principle
Q3. Where do we record accrued salaries in the financial statements?
A) Long-Term Liabilities
B) Retained Earnings
C) Current Liabilities
D) Assets
Ans: C) Current Liabilities
Q4. What is the impact of recording outstanding salary on financials?
A) Increases assets
B) Reduces liabilities
C) Increases expense and liability
D) Increases revenue
Ans: C) Increases expense and liability
Q5. Outstanding salary affects which two accounts?
A) Cash and Revenue
B) Salary Expense and Accrued Liabilities
C) Depreciation and Payables
D) Inventory and Salary Expense
Ans: B) Salary Expense and Accrued Liabilities
Relevance to US CPA Syllabus
For US CPA aspirants, the concept of outstanding salary is tested under FAR (Financial Accounting and Reporting). It helps students understand adjusting journal entries and correct classification of liabilities. The treatment must align with accrual accounting standards and reflects accurate year-end adjustments.
Outstanding Salary Journal Entry US CPA Questions
Q1. What is the correct adjusting entry for unpaid salaries at year-end?
A) Debit Cash; Credit Salaries Expense
B) Debit Salaries Expense; Credit Accrued Salaries
C) Debit Accrued Salaries; Credit Salaries Expense
D) No entry needed
Ans: B) Debit Salaries Expense; Credit Accrued Salaries
Q2. Under which category does accrued salary fall in GAAP-compliant financials?
A) Deferred Revenue
B) Current Liabilities
C) Long-Term Provisions
D) Other Assets
Ans: B) Current Liabilities
Q3. Which concept ensures salaries are reported in the right period?
A) Periodicity Concept
B) Cost Principle
C) Matching Concept
D) Full Disclosure Principle
Ans: C) Matching Concept
Q4. How does accrued salary affect the income statement?
A) Reduces income
B) Increases assets
C) Has no effect
D) Increases profit
Ans: A) Reduces income
Q5. If the salary is ₹50,000 and ₹10,000 remains unpaid, how is it recorded?
A) Salary A/c Dr. 40,000; Cash A/c Cr. 40,000
B) Salary A/c Dr. 50,000; Cash Cr. 40,000; Outstanding Salary Cr. 10,000
C) Salary A/c Dr. 10,000; Cash Cr. 10,000
D) No entry
Ans: B) Salary A/c Dr. 50,000; Cash Cr. 40,000; Outstanding Salary Cr. 10,000
Relevance to CFA Syllabus
In the CFA curriculum, particularly in Level 1 Financial Reporting and Analysis, the recognition of accrued liabilities like outstanding salary is essential. Candidates learn to analyze the effect of accruals on earnings and financial position. This builds a foundation for understanding cash vs. accrual impacts on valuation and earnings quality.
Outstanding Salary Journal Entry CFA Questions
Q1. In financial analysis, how does outstanding salary affect liabilities?
A) It reduces current liabilities
B) It has no effect
C) It increases current liabilities
D) It adds to assets
Ans: C) It increases current liabilities
Q2. Under accrual accounting, which concept applies to unpaid salaries?
A) Revenue Recognition
B) Matching Principle
C) Prudence
D) Materiality
Ans: B) Matching Principle
Q3. Which financial statement shows the effect of outstanding salary?
A) Statement of Financial Position
B) Cash Flow Statement only
C) Income Statement only
D) Notes to Accounts only
Ans: A) Statement of Financial Position
Q4. What is the effect of outstanding salary on net income?
A) It increases it
B) It reduces it
C) It removes it
D) It does not change it
Ans: B) It reduces it
Q5. Why is the recognition of accrued salary important for analysts?
A) To measure non-operating income
B) To analyze working capital and earnings quality
C) To assess marketing spend
D) To calculate dividend payout
Ans: B) To analyze working capital and earnings quality
