JOURNAL ENTRY FOR SALARY (including allowance and deductions)

Journal entry for Salary: -


Salary paid company includes allowances and deductions. Allowances are many types I am giving you some examples: -

Types of allowances:-

  • Dearness Allowance: - It is a cost of living adjustment allowance paid to employees in India. It is calculated as a percentage of basic salary to moderate the impact of inflation on employees. The DA vary according to areas (whether rural or urban)
  • House Rent Allowance: - It is given by employer to the employee to meet the rent expense.
  • Performance Allowance: -It is given to employee when they achieve the target given by the employer.
  • Transport Allowance: -It is given to employee in order to meet the expense to come to office from employee residence.
  • Children Education Allowance: -It is paid for education of employees children.
  • Medical Allowance: -It is given to employees to medical expenses.
  • Uniform Allowance: -It is given to employees for the expenditure. incurred on purchase or maintenance of uniforms to wear during the performance of the duties.

Types of Deductions: -

  • ESI: - Employee state Insurance scheme is a self-financing social security and health scheme for workers. It is applicable for all employees whose salary is Rs.15000/- per month. The employer contributes 4.75 percent and employee contributes 1.75 percent, total of 6.5 percent. The employee portion will be deducted from salary and paid to ESI Corporation including employer contribution.
  • EPF: - Employees Provident Fund provides Pension scheme and insurance scheme .It is mandatory applicable for all employees whose salary is Rs.15000/- per month.The employer and employees both contributes @ 12 percent.
  • Tax Deducted at Source : - As per Income tax act the TDS on salary should be deducted if the employee’s salary is exceeding the zero tax slab bar.
  • Health Insurance & other deductions:- Health insurance paid on behalf of employee is deducted from employee depending on proportionate contribution by employer.Other deductions includes part contribution b employees in food allowance and other.

Journal entry for Salary: -
  
  Let us take example: -
  Basic + Dearness allowance=1200000
  House rent allowance = 150000
  Transport allowance = 75000
  Other Allowance = 25000 
  ESI contribution (employer + employee) =45000(30000+15000)
  PF contribution (employer + employee) = 100000(50000+50000)
  TDS = 25000                                                       

Journal Entry will be: -
    
      Salary A/C    Dr                        1450000(1200000+150000+75000+25000)
      ESI contribution A/C Dr              45000
      PF Contribution A/C Dr               100000
                             To Salary Payable A/C                1425000
                             To ESI contribution payable A/C  45000
                             To PF contribution payable A/C    100000
                             To TDS payable A/C                    25000

(Being salary paid for the month of march)
The rules for passing Journal entry
Note:-
Debit
Salary is expense to the company, so as per nominal account rule (Salary A/C) “Debit all expense or loss" (Expense Account)
Debit
ESI contribution is expense to the company, so as per nominal account rule (ESI contribution) “Debit all expense or loss"(Expense Account)
Debit
PF Contiribution is expense to the company, so as per nominal account rule (PF Contribution A/C)“Debit all expense or loss"(Expense Account)
Credit
Salary payable is liability to company, so as per personal account rule (Salary Payable A/C) "Credit the giver account"(Current Liabilities)
Credit
ESI contribution payable is current liability and the same need to be paid to ESI department with in due date, so as per personal account rule (ESI contribution payable A/C) "Credit the giver account"(Current Liabilities)
Credit
PF contribution payable is current liability and the same need to be paid to PF department with in due date, so as per personal account rule (PF contribution payable A/C) "Credit the giver account"(Current Liabilities)
Credit
TDS payable is liability and the same need to be paid to income tax department , So as per personal account rule (TDS payable A/C) "Credit the giver account"(Current Liabilities)


The Salary amount above mentioned is salaries for all employees , before passing the entry we should prepare a sheet of salaries payable to all employees and the same will be used as support document for passing this entry.The salary in above Journal entry includes Basic+ All other Allowances.

Journal Entry for salary Payment 

                      Salary Payable A/C     Dr    1425000
                                   To Bank                                      1425000

(narration being salary for the month of march paid in April )
The rules for passing Journal entry
Debit 
Salary payable account is debited to cancel the liability, because there is out flow of cash against the liability.
Credit 
There is outflow of money so as per real "credit what goes out of business"

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