What is outstanding salary ?
Outstanding salary refers to the unpaid salary owed by a company to its employees for a specific period.
It occurs when the salary expense for a particular period has been incurred but has not yet been paid or recorded in the accounting books.
Outstanding salary is considered a liability for the company since it represents an amount owed to employees.
What is Journal Entry for Salary Outstanding ?
The journal entry for salary outstanding involves recording the expense and liability associated with the unpaid salaries. The specific accounts used may vary depending on the company’s chart of accounts and accounting practices.
Here’s an example of the journal entry for outstanding salary:
| Date | Particular | Debit | Credit |
|---|---|---|---|
| 31/03/20XX | Salary Expense [Expense account] | XXXX | |
| Salaries Payable [Liability account] | XXXX |
Example 1 - Outstanding Salary
Here’s an example to illustrate the concept of outstanding salary:
Let’s assume that a company has a monthly payroll cycle, and the monthly salary expense for all employees is $10,000. The company’s accounting period ends on the last day of each month. At the end of Month 1, the company has processed the payroll and recorded the salary expense of $10,000 in the books.
However, the company pays salaries on the 5th day of the following month. So, at the end of Month 1, there is an outstanding salary liability of $10,000, representing the unpaid salaries for that month.
Journal Entry
The journal entry to record the outstanding salary at the end of Month 1 would be as follows:
| Date | Particular | Debit | Credit |
|---|---|---|---|
| End of Month 1 | Salary Expense [Expense account] | $10,000 | |
| Outstanding Salaries Payable [Liability account] | $10,000 |
In this journal entry, the Salary Expense account is debited to recognize the expense incurred for the month. The Outstanding Salaries Payable account is credited to record the liability for the unpaid salaries.
Subsequently, when the company pays the salaries in Month 2, the following journal entry is recorded:
| Date | Particular | Debit | Credit |
|---|---|---|---|
| Salary Payment Date of Month2 | Outstanding Salaries Payable [Liability account] | $10,000 | |
| Cash/bank Account [Assets account] | $10,000 |
In this journal entry, the Outstanding Salaries Payable account is debited to reduce the outstanding salary liability. The Cash/Bank account is credited to record the cash outflow for salary payments.
By recording outstanding salary as a liability, the company accurately represents the amount owed to employees and ensures proper financial reporting of its salary obligations.
