Question

What is the circumstance that makes it necessary to adjust salaries expense and payable at the end of the period? Please develop a specific example with numeric data to illustrate your point.

Answer 1

Salary expense adjustment is done when a salary is accrued but not paid at the time of end of period.

The adjustment of salary is a case of adjustment of accrued expense. All Expenses like Salary, Interest , commission etc are required to be recorded as accrued even when they are not paid.

Lets take an example to understand this clearly

Say a company has a policy to pay employees weekly $5000 on every Friday for 5 days work. Now if a period ends on Wednesday then it means salary of 3 days is earned by employees but not paid to employees and hence 3 days salary will be recorded as expense with corresponding liability as salary payable.

General Journal	Debit	Credit
Salaries and wages expense	$      3,000.00
Salaries and wages payable		$     3,000.00
(To record salaries expense)

Example 2

Say a company pays total $10000 salary on on first of every month for last month’s pay. Now salary will be on every last of the month and will be paid on first day of next month.

Journal entry for the month of January to be paid in February will be as follows.

General Journal	Debit	Credit
Salaries expense	$      10,000.00
Salaries payable		$      10,000.00
(To record salaries expense)