Salary payable is the amount of liability of the company towards its employees against the services provided by them but not yet paid. Salary payable is a current liability account that contains all the balance or unpaid amount of wages at the end of the accounting period.
This account is treated as a current liability because usually, its balance is due within one year. The balance of this account increases with credit and decreases with debit entries.
Difference between the salary expense and salary payable:
The difference between the salary expense and salary payable is the same that lies between an expense account and a liability account.
Salary expense is the amount of wage that an employee earned during the period irrespective of whether it is paid or not.
For example, the salary of a waiter for a KFC branch after he serves for the whole month. The salary expense account is a nominal account and closes in the profit & loss statement.
Salary payable is a liability account keeping the balance of all the outstanding wages.
Every company doesn’t need to maintain salaries payable account because some companies pay their employees at the end of every month, so in that situation, there is no liability present at the end of the month.
In short, the difference between salary expense and salary payable is that the salary expense is the total expense for the period while the salary payable is only the amount of remuneration that is due.
Accounting treatment of salary payable:
Salary payable is classified as a current liability account that appears under the head of current liabilities on the balance sheet. All the general rules of accounting are also applicable to this account.
Example:
Pass the journal entries and make salaries payable ledger account for the following transactions of Abdan & Co on 30th January 2019.
The opening balance of salary payable is amounting to $30,000.
- The total salary expense for January is $20,000. Out of which, $10,000 is paid on 30th January, while the remaining balance is still unpaid.
- During the month, $5,000 is paid against the previous month’s salary.
- Wages of 30th January are still unpaid due to a shortage of cash at the office amounting to $2,000.
Solution:
Journal Entries:
1)
Dr. Salary Expense $20,000
Cr. Cash $10,000
Cr. Salaries & Wages Payable $10,000
2)
Dr. Salaries & Wages Payable $5,000
Cr. Cash $5,000
3)
Dr. Wages Expense $2,000
Cr. Salaries & Wages Payable $2,000
Ledger for Salaries & Wages Payable:
| Description | Dr | Cr | Balance |
| Opening Balance | $30,000 | ||
| Salary Expense | $10,000 | $40,000 | |
| Cash | $5,000 | $35,000 | |
| Wages Expense | $2,000 | $37,000 | |
| Ending balance on 30th January | $37,000 |
The balance sheet of Abdan & Co will show a balance of $37,000 in their salaries and wages payable account under the head of current liabilities.
Most of the big companies further divide the salaries payable account as per demography or department to get a clearer picture of their salary payable account.
But for small to middle size organizations, one ledger account is more than enough to record all their payables related to their employees.
