Question

Jan 1. The company haired 4 employees with a monthly salary of 1,500 each. The salary is to be paid on the first day of each month.

How will be recording the transaction?

Answer 1

Here, the account to be opened is salaries account. Since salary of each month is to be paid on the first day of the next month, we need to maintain salary payable account too, i.e, on the last day of each month, pass an entry for salary due of each month and the next day (which is the first day of the next month), make an entry for the payment.

The entries to be passed for salary in the month of january is given below for better understanding:-

Journal
Date	Particulars	LF	Debit	Credit
31-Jan	Salaries Account	Dr		6,000
	To	Salaries Payable				6,000
	(Being salary of 4 employees @ 1,500 each
	in the month of January made due)
1-Feb	Salaries Payable Account	Dr		6,000
	To	Cash Account				6,000
	(Being salary payable for the month of
	January paid)

However, if the company is using cash basis of accounting (and not accrual basis), then only the payment entry is required, which would be as follows:-

Journal
Date	Particulars	LF	Debit	Credit
1-Feb	Salaries Account	Dr		6,000
	To	Cash Account				6,000
	(Being salary for the month of January for
	4 employees @ 1500 each paid)