The salary expense account is a nominal account and closes in the profit loss statement. The portion of wages and salaries that go to other business activities such as sales and bookkeeping are listed with your other expenses and are categorized as indirect costs.
There is a salaries expense debit entry because during the actual disbursal of salaries there may be a certain amount of salary that has accrued but has not been reflected in the salaries payable.
Salary expense on balance sheet. Do salary expenses go on a balance sheet. Net income simple conceptual definition equals total revenue less total expenses. Otherwise salaries and wages are an expense regardless of whether they have been paid or are in current liabilities on the balance sheet.
For example the salary of a waiter for a kfc branch after he serves for the whole month. It is important to remember that all non discretionary fixed costs will be incurred even if production or sales volume falls to zero. Its offset is normally salary payable.
The principal of accrual accounting requires that expenses are recorded as the firm incurs them irrespective of the fact whether actual cash has been paid or not. On a balance sheet the difference between assets and liabilities is owners equity. In addition to affecting retained earnings or the owner s capital account an expense will also cause one or more of the following changes to the balance sheet.
Any salaries owed by not yet paid would appear as a current liability but any future or projected salaries would not show up at all. A most popular example includes salaries and wages payable as companies typically pay their employees at a later date for work done in the prior month. As such liability for such expenses is created and shown on the balance sheet liability side as accrued liabilities.
How an expense affects the balance sheet. Salary expense debits and credits like a liability but is an asset. Expenses belong on the income statement as part of determining net income.
Salary expense is the amount of wage that an employee earned during the period irrespective of whether it is paid or not. On the balance sheet it is easier if you have two accounts for salary costs. The debiting of salaries payable in the above journal entry removes the salary payable liability on the balance sheet.
Salaries do not appear directly on a balance sheet because the balance sheet only covers the current assets liabilities and owners equity of the company. Some fixed costs are incurred at the discretion of a company s management such as advertising and promotional expense while others are not. The employer s nic is added to this account.
One is for the net salary which is the 70 of the gross salary and the second for the 30 of the gross salary representing the paye and the employees nic. Such liability decreases when the business pays cash to satisfy it. An expense will decrease a corporation s retained earnings which is part of stockholders equity or will decrease a sole proprietor s capital account which is part of owner s equity.
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