The accounting at the time of recording salaries requires the recognition of both an expense as well as a liability. This is recorded through a called the salary payable journal entry. This entry indicates how much the company owes its employees for services already rendered but not yet compensated. Why because it ultimately impacts the P&L account as well as the balance sheet. When recorded in the journal, it is the unpaid salary expenses that show as a liability. This entry brings you when salaries fall due at the end of a month but not yet paid. You will debit your salary expense and credit your salary payable. This helps maintain accurate books and offsets expenses against the right period. From example after example to the words written in simple ways, this article explains the concept. We will discuss the salary payable journal entry in Tally, accrued salaries payable journal entry, and also the salary payable journal entry with TDS. You will also learn how to make entries for salary payable, salary paid and adjustments in accounts software. No matter if you are a student, an accountant or a small business owner, you will have all the knowledge about the journal entry for salary payable in every possible situation after reading this article.
What is Salary Payable in Accounting?
Recording employees’ salaries accurately is a must for businesses. Salary is an expense, but before it is actually paid, it is a liability. This unpaid amount is recorded using the salary payable journal entry. The amount owed to employees at the end of the accounting period by the company is referred to as salary payable. It is due in the near future because it is a short-term obligation that the company owes. Even if the payment is made in the following month, you have to make this entry in order to show a correct salary expense.
In passing the salary payable journal entry, you debit the salary expense and credit salary payable.
Journal Entry Format
| Particulars | Debit (₹) | Credit (₹) |
| Salary A/c To Salary Payable A/c | ₹X | ₹X |
Narration: (Outstanding salary)
This entry is significant for proper bookkeeping. It appears as expense in P&L and liability in BS.
Salary Payable Journal Entry Example
At the end of a period salary payable entry is used to record the accrued but unpaid salaries. The salaries expense account represents the total cost of salaries for the period and is a liability of the company to its employees. The easy examples are provided in this part for the practical understanding of how to post the salaries payable journal entry. This applies to schools, small business and companies. Proper salary accounting also allows matching of costs with certain period. This aids good reporting and assists in properly preparing financial statements.
Example 1 – Outstanding Salary but Not Paid
Company XYZ has a salary for the month of March ₹80,000 but pays on April 5. Entry on March 31:
Salary Expense A/c Dr. ₹80,000
To Salary Payable A/c ₹80,000
Thus, this accrued salaries payable journal entry also makes sure that at the same time salary is charged in the March accounts even when the money is to part in the month of April.
Example 2 – Wages Received Next Month
On April 5, when the company pays salaries, make this entry:
Salary Payable A/c Dr. ₹80,000
To Bank A/c ₹80,000
This accounts for the previous liability and represents cash outflow.
Salary Payable Journal Entry with TDS
So, in India, you are liable for taxes which are usually deducted at source by companies as TDS (Tax Deducted at Source). TDS on the salary paid journal entry must show gross salary, TDS deducted, and net salary paid. This ensures full transparency in records with respect to the salary payable journal entry with TDS. It also avoids penalties from tax authorities. TDS returns Companies need to match these with TDS returns.
Components in the Entry
Let’s say:
- Gross Salary: ₹50,000
- TDS Deducted: ₹2,000
- Net Paid: ₹48,000
Journal Entry:
Salary Expense A/c Dr. ₹50,000
To TDS Payable A/c ₹2,000
To Salary Payable A/c ₹48,000
When the company pays net salary:
Salary Payable A/c Dr. ₹48,000
To Bank A/c ₹48,000
TDS deducted from payment is deposited with the government.
TDS Payable A/c Dr. ₹2,000
To Bank A/c ₹2,000
Salary Payable Journal Entry in Tally
Tally is a popular accounting software used in India. In Tally, you can record the salary payable journal entry using journal vouchers. The salary payable journal entry with TDS gives full transparency in records. It also helps avoid penalties from tax authorities. Companies must match these amounts with TDS returns.
Process Worth Going Through for Entry in Tally
- Navigate to Accounting Vouchers > Select F7 (Journal)
- Debit: Select Salary Expense A/c
- Choose Salary Payable A/c in Credit
- Enter amount
- Add a narration like “Salaries due for March” etc
Example Entry in Tally
| Particulars | Debit (₹) | Credit (₹) |
| Salary Expense A/cTo Salary Payable A/c | 1,00,000 | 1,00,000 |
Depending on your company settings, use payroll or manual vouchers.
Paid Salaries Payable Journal Entry
Once a company pays the salary, after recording it as payable, you must reverse the liability. This journal entry is called the paid salaries payable. The entry records the company’s responsibility to pay its employees.
General Format
Salary Payable A/c Dr. ₹XX
To Bank/Cash A/c ₹XX
Narration: (Payment of salary for the last month)
This settles the liability and adjusts the bank or cash balances.
Example
In the month of June, ABC Ltd. has the salary payable ₹70,000. Paid on July 5:
Salary Payable A/c Dr. ₹70,000
To Bank A/c ₹70,000
In addition, you have to keep salary slips and payment invoices for audit.
Accrued Salaries Payable Journal Entry
Sometimes, companies forget to record salary expenses at month-end. They later record it as accrued salaries payable journal entry to correct this. Accrual entries match expenses with the right time. They help in financial reporting even if cash hasn’t gone out yet.
Format of Accrual Entry
Salary Expense A/c Dr. ₹XX
To Salaries Payable A/c ₹XX
You pass this entry on the last day of the month or accounting period.
Example
On March 31, salary of ₹60,000 is due but not yet recorded. Entry:
Salary Expense A/c Dr. ₹60,000
To Salaries Payable A/c ₹60,000
On payment, reverse the payable entry and pay the amount.
Journal Entry for Salary Payable Examples
A common starting point for journal entries related to salaries payable is to recognize the expense incurred when employees earn their wages but haven’t been paid yet. This is often done at the end of an accounting period. Let’s summarize all the major journal entries for salary payable examples.
| Situation | Journal Entry |
| Salary due but not paid | Salary Expense Dr. To Salary Payable |
| Salary paid (after being recorded) | Salary Payable Dr. To Bank |
| Salary with TDS | Salary Expense Dr. To TDS Payable, To Salary Payable |
| TDS paid to government | TDS Payable Dr. To Bank |
| Salary paid via cash | Salary Payable Dr. To Cash |
| Salary accrued at month-end | Salary Expense Dr. To Salary Payable |
Relevance to ACCA Syllabus
As such, recording accrued liabilities such as for a salary payable journal entry is pivotal in ACCA’s Financial Accounting (FA) and Financial Reporting (FR) papers. This is related to the accrual concept which states expenses should be matched with the correct accounting period. It also affects reporting of liabilities on balance sheet.
Salary Payable Journal Entry ACCA Questions
Q1: How to pass the journal entry of unpaid Salary of ₹60,000 at the month end?
A. Salary Expense A/c Dr. ₹60,000; Bank A/c ₹60,000
B. Wages A/c Dr. ₹60,000; To Wages Payable A/c ₹60,000
C. To record Salary Payable; Salary Payable A/c Dr. ₹60,000A/c
D. Salary A/c Debit ₹60,000; By Capital A/c ₹60,000
Answer: B
Q2: In which aspect of the financial statements does the salary payable appear?
A. Under fixed assets
B. Not in the profit and loss account
C. Under current liabilities in balance sheet
D. As part of equity
Answer: C
Q3: Which principle is observed while recording salary payable at the end of the month?
A. Prudence Principle
B. Matching Principle
C. Consistency Principle
D. Realization Principle
Answer: B
Q4: What double entry would you make when the salary that had been previously accrued gets paid?
A. Salary Expense A/c Dr; To Bank A/c
B. Salary Payable A/c Dr. To Bank A/c
C. Account for Salary Payable; Salary Expense Account
D. Bank A/c Dr.; To Salary Payable A/c
Answer: B
Q5: What is true if salary payable is not recorded?
A. Profit is understated
B. Liabilities are overstated
C. Profit is overstated
D. Assets are understated
Answer: C
Relevance to US CMA Syllabus
Part 1 – Financial Planning, Performance and Analytics (Salary-related liabilities are involved in internal control and financial statement preparation. Accrued salary payable journal entry accounting, as a CMA, requires you to understand the nature and implications of accrued salary payable journal entry, enabling cost reporting accurately and controlling expenses while ensuring compliance.
Salary Payable Journal Entry US CMA Questions
Q1: Which account is increased when salaries are incurred but not paid?
A. Bank Account
B. Salary Payable
C. Capital Account
D. Cash Account
Answer: B
Q2: Month-end Accrued Salaries Whilst accruing salaries at the month-end, two accounts get affected.
A. Salary Expense and Bank
B. Salary Payable and Equity
C. Salary Expense and Salary Payable
D. Salary Expense and Cash
Answer: C
Q3: Recording salary payable is done in order to:
A. Show cash flow
B. Match expenses to the period incurred
C. Defer employee payments
D. Reduce liabilities
Answer: B
Q4: What is the effect of not recording salary payable in the books?
A. Understated revenue
B. Overstated liabilities
C. Overstated net income
D. Overstated depreciation
Answer: C
Q5: What kind of expense is salary payable recorded but unpaid?
A. Operating Expense
B. Deferred Expense
C. Accrued Liability
D. Prepaid Expense
Answer: C
Relevance to US CPA Syllabus
CPA Candidates must appropriately recognize liabilities like salaries payable in the FAR (Financial Accounting and Reporting) section of the CPA Exam using accrual based accounting. The subject illustrates recognition and timing differences and adheres to US GAAP.
Salary Payable Journal Entry US CPA Questions
Q1: Salary payable is classified as a current liability under US GAAP.
A. Deferred Expense
B. Accrued Liability
C. Expense
D. Asset
Answer: B
Q2: What will the journal entry be when $10,000 of salaries payable is due but unpaid?
A. Salary Expense A/c Debit $10,000; Credit Cash A/c
B. To Bank A/c $10,000; B. Salary Payable A/c Dr.
C. Salary Expense A/c Dr. $10,000; To Salary Payable A/c $10,000
D. Bank A/c Dr. $10,000; To Salary Payable A/c
Answer: C
Q3: When do we remove the payable from the books?
A. When salaries are budgeted
B. When salaries are paid
C. When bonuses are approved
D. After salaries are reassessed
Answer: B
Q4. If salary payable is not recorded in the month; then when it is payable?
A. Revenue is understated
B. Expenses are overstated
C. Net income is overstated
D. Depreciation increases
Answer: C
Q5: Where do you find salary payable on the balance sheet?
A. Equity
B. Long-Term Liabilities
C. Current Liabilities
D. Other Income
Answer: C
Relevance to CFA Syllabus
In Level 1: Financial Reporting and Analysis, CFA candidates need to comprehend how accrued liabilities such as salaries payable affect working capital, liquidity analysis, and financial statement interpretation. This aids analysts in evaluating a firm’s operating efficiency and near-term liabilities.
Salary Payable Journal Entry CFA Questions
Q1: Which financial statement would show salary payable?
A. Income Statement
B. Balance Sheet
C. Cash Flow Statement
D. Statement of Retained Earning
Answer: B
Q2: If salary payable goes up high does it impact current ratio?
A. It improves liquidity
B It lowers the current ratio
C. No impact on ratios
D. It increases profitability
Answer: B
Q3: Which of the following is true when salaries are accrued?
A. Assets increase
B. Equity increases
C. Liabilities increase
D. Expenses decrease
Answer: C
Q4: Analysts utilize the salary payable account to:
A. Measure profitability
B. Estimate cash flows
C. Assess the short-term debt obligations
D. Adjust revenue
Answer: C
Q5: What could high salary payables over multiple periods indicate to an analyst?
A. Improved efficiency
B. Late payments from cash shortages
C. Higher income
D. Tax evasion
Answer: B
