InvestorQ : I am starting a business I have given sallery 55000 and 5000 is remaining and I have to calculate income earned that is equal to revenue-expenses in this sallery is expenses so in expenses we have to write 55000 thousand or 60000 in expenses and why?
Ricky made post

I am starting a business I have given sallery 55000 and 5000 is remaining and I have to calculate income earned that is equal to revenue-expenses in this sallery is expenses so in expenses we have to write 55000 thousand or 60000 in expenses and why?

Answer
image
Isha Tharwani answered.
11 months ago
Follow
I’m assuming the balance remaining with you is the salary that is to be paid in the coming time or is due but not paid yet. According to the double-entry system of accounting, where an expense is due for a financial year and is not paid – it shall be shown as payable in your balance sheet and will be deducted from expenses.

So, the entry for the same will be:
P/L or Expenses account ….Dr.
To Salary Payable a/c
(Being salary payable recorded)

The reason we do this is because of the accrual-based accounting. Under this, a company recognizes revenue when the money is earned or when the expenses are incurred even though they have not been paid. So, the salary payable is an expense that has accrued for the company, but not yet paid. As per rules, if there is an expense that is to be done in that financial year, it shall be recorded, and a corresponding liability shall be created against it in the books. This way, the double-entry system, and accrual-based accounting both are followed. Later on, when the salary is paid the cash account shall be reduced for the payment.

The entry would be as follows:
Salary Payable a/c….Dr.
To Cash account
(Being salary paid)

Passing the above entry will clear any liability that you have created earlier for the salary payable.
5 Views