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Journal Entries of Payroll
>> AUGUST 29, 2012
Payroll means total salary of an employee. When we pay the net salary to any employee, we make the his or her payroll. Payroll record is necessary because it is the main expense of company. There are many liabilities like TDS, EPF and ESI which are related to payroll. So, it is made with full of care because we have to adjust total deductions from the salary in this. We also record all these items with following journal entries.
1. Pass the journal entry when salary is due.
Basic Salary Debit
Allowances Debit
Company Contribution to EPF Debit
Company Contribution to EPS Debit
Administration Charges to EPF Debit
Company contribution to ESIC Debit
EPF Payable Credit
EPS Payable Credit
ESIC Payable Credit
Professional Tax Payable Credit
TDS Payable Credit
Labour welfare fund Payable Credit
Loan to Employee Credit
Salary Advance to Employee Credit
Rent Recovery Credit
Canteen Expense Credit
Salary Payable Credit
2. Pass the journal entry of the payment of salary.
Salary Payable Debit Cash/ Bank Credit
Now understand the above journal entry
Basic salary and allowance are the salary expense which go to salary payable and which is paid to employee at the time of payment of salary. EPF, EPS and ESI contribution will be transferred to their payable fund accounts. Because all these contribution is also expense, so we have debited the contribution in these funds. Before transferring to salary payable account, we deduct the TDS and transfer to TDS payable account. So, TDS payable account will be credited.
You should understand the meaning of above payroll items.
1. EPF = Employees provident fund.
2. EPS = Employees pension scheme
4. ESIC = Employees State Insurance Corporation
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Prof. Vinod Kumar has received the post graduate degree in Commerce from ... read more »