How to debit and credit salaries expenses

 

How to debit and credit salaries expense? Salaries and wages are some types of expenses that a company pays for after the services have been performed by the employees. Therefore, the salaries expense is usually recorded when cash is paid to the employees.

 

This post is part of the “how to debit and credit” tutorials that describe how to record accounting transactions. In this basic accounting tutorials, we use the transactions of Frontier Advertising Company (FAC). For simplicity, we assume that FAC uses accounting period of one month. Three levels of transaction analysis will be adopted (that is, the basic analysis, analysis using accounting equation, and debit-credit analysis). According to those analyses, you will easily understand how transactions are recorded in the general journal.

 

Index of how to debit and credit tutorial

• Investment by owner
• Purchase of equipment
• Unearned revenues
• Payment of rent expenses
• Insurance as prepayment and the adjusting entry
• Supplies purchase and the adjusting entry
• Withdrawal by owner
• Payment of salaries expense
• Service revenues
• What is depreciation

What are salaries and wages expenses?

As an employee, you will usually receive your salaries or wages after you work for your employees for a period of time (two weeks or one month). In accounting, the salaries and wages expense arise when the employees do their jobs. In practice, salaries and wages expense is recorded when cash is paid by debiting salaries and wages expense and crediting cash.

 

How to debit and credit salaries expenses?

On January 26, FAC owes its employee salaries of $4,000. It pays the salaries in cash. The employee was hired on January 9.

 

Basic transaction analysis

The service has been conducted by the employee from January 9 to January 26. Therefore, the salaries and wages expense account increases $4,000. On the other hand, the asset in the form of cash decreases $4,000.

 

Accounting equation analysis

Accounting equation can be used to show the economic effects of an accounting transaction. It states that the total value of a company's assets must always equal the combined value of its liabilities and its owners' equity.

In this illustration, the effects of the increase in salaries and wages expense (decrease in equity) and the decrease in cash can be shown in terms of the accounting equation as follows:

 

Debit-credit analysis

According to the debit-credit rule, the increase in expenses is debited. From the accounting point of view, the Salaries and Wages Expense account is debited $4,000.

According to the debit-credit rule, the decrease in assets is credited. The salaries payment of $4,000 means the cash is no longer available in FAC. Technically, the Cash account is credited $4,000.

 

Journal entry

In a manual accounting system, the journal entry is recorded in a general journal book. The general journal is made of pages with several columns for date, account title, account code, reference, and debit and credit amounts. Periodically, a batch of debit and credit amounts in the general journal are posted to the relevant accounts in the general ledger.