Rahul M

Recording Gross Salary and Net Salary Payable

Situation: An employee earns gross salary of ₹50,000
for the month. Employee deductions total ₹5,000, leaving net salary
payable of ₹45,000.

Entry — When monthly payroll is recognized

Why this entry?

• Gross salary is recognized as an employee expense.
• Employee deductions are recorded as liabilities until they are remitted to the appropriate authorities or other recipients.
• Net salary payable represents the amount owed to the employee.

Paying Net Salary to Employees

Situation: The company pays the employee the net salary
of ₹45,000 through its bank account.

Why this entry?

• The salary payable liability decreases because the employee has been paid.
• The bank balance decreases by ₹45,000.
• The salary expense is not recorded again because it was recognized during payroll processing.

Remitting Employee Deductions

Situation: The company withheld ₹5,000 from employee
salaries. The amount is now remitted to the relevant authorities or
other recipients, according to the nature of the deductions.

Why this entry?

• The outstanding deduction liability decreases.
• The company bank balance decreases when the amount is remitted.
• The original employee salary expense is not affected by this settlement entry.

Recording Employer Contributions

Situation: In addition to employee salary, the company
incurs an employer contribution of ₹4,000 for employee benefits or
statutory contributions. The amount is payable but has not yet been remitted.

Why this entry?

• The employer incurs an additional employee-related expense.
• The unpaid contribution creates a liability.
• This employer expense is separate from deductions withheld from employee salaries.

Paying Employer Contributions

Situation: The company remits the previously recorded
employer contribution of ₹4,000.

Why this entry?

• The outstanding employer contribution liability is cleared.
• The bank balance decreases.
• The expense is not recorded again because it was recognized when the liability arose.

Recording a Bonus Payable

Situation: At year-end, the company determines that
employees have earned bonuses totaling ₹1,00,000. The obligation meets
the applicable recognition criteria, but payment will occur later.

When the bonus is paid

Why this entry?

• The bonus expense is recognized in the period in which the employee service and applicable recognition criteria give rise to the obligation.
• The unpaid bonus is recorded as a liability.
• Payment later clears the liability.

Recording Unpaid Salary at Month-End

Situation: Employees have earned ₹2,00,000 in gross
salaries for March. Payroll has been calculated, but the company will
pay employees in April. For simplicity, this example excludes deductions.

Entry — At the end of March

Entry — When salaries are paid in April

Why this entry?

• The salary expense belongs to March because employees performed the work during that period.
• The unpaid amount is recognized as a liability at month-end.
• The April payment clears the liability.

Recording a Salary Advance

Situation: The company pays an employee an advance
of ₹10,000 before the regular monthly payroll is processed. Under the
company’s policy, the amount is recoverable from the employee’s next salary.

Entry 1 — When the advance is paid

Entry 2 — When the advance is recovered from payroll

Assume gross salary is ₹50,000, with no other deductions in this
simplified illustration. The employee receives ₹40,000 after recovery
of the advance.

Why this entry?

• The original advance is recorded as a receivable because it is recoverable from the employee.
• Gross salary expense is recognized in full when earned.
• The advance recovery clears the receivable and reduces the amount paid through the next payroll.

Correcting an Incorrect Payroll Posting

Situation: A payroll expense of ₹20,000 was
incorrectly posted to the Administration Department instead of the
Production Department. The total salary expense is correct, but the
department allocation is wrong.

Correction entry

Why this entry?

• The expense is transferred to the correct department.
• Total company salary expense remains unchanged.
• Departmental cost reports become more accurate.

Reconciling Payroll with the General Ledger

Situation: The payroll register confirms gross salary
expense of ₹5,00,000 for the month, but the general ledger contains
only ₹4,80,000. Investigation confirms that ₹20,000 of salary expense
was omitted from the ledger and has not been recorded elsewhere.

Correcting entry

Why this entry?

• The salary expense is increased to reflect the complete payroll cost.
• The related unpaid salary is recognized as a liability, assuming it remains unpaid.
• The general ledger now agrees with the verified payroll register for the expense amount.