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Natalia Alva

What is the journal entry for outstanding salary?

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1 Answer

  1. This answer was edited.

    Outstanding Salary

    Example- Company A Ltd pays their employees a monthly salary of 25,000. The company has a policy that it pays the previous month salary to its employees on 10th of next month. Salary for March is due and is duly to be paid by the 10th of April as per the company policy. Journalise the following transaction for salary due and paid in the books of ABC and Co.
    In the Books of ABC and Co.

    Date Particulars L.F. Amount Nature of Account Accounting Rule
    31st March Salary a/c       Dr 25,000 Nominal Debit- All Expense and Losses
     To Outstanding Salary a/c  25,000 Representative Personal Credit- The Giver

    (Being salary due for March)

    Date Particulars L.F. Amount Nature of Account Accounting Rule
    1st April Outstanding Salary a/c       Dr 25,000 Representative Personal Debit- The Receiver
     To Cash/Bank a/c  25,000 Real Credit- What goes out of the business

    (Being salary paid)

    Accounting Treatment

    Outstanding salary is added to the salary and shown on the debit side of profit and loss account. It is further shown under the head current liabilities in the balance sheet. Outstanding salary is also known as Salary due (or) Salary payable.

    Modern Accounting Approach

    We will record the same transaction by following the modern rules of accounting
    In the Books of ABC and Co.

    Date Particulars L.F. Amount Nature of Account Accounting Rule
    31st March Salary a/c       Dr 25,000 Expense Debit- The Increase in Expense
     To Outstanding Salary a/c  25,000 Liability Credit- The Increase in Liability

    (Being salary due for March)

    Date Particulars L.F. Amount Nature of Account Accounting Rule
    1st April Outstanding Salary a/c       Dr 25,000 Liability Debit- The Decrease in Liability
     To Cash/Bank a/c  25,000 Asset Credit- The Decrease in Asset

    (Being salary paid)

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