Compensation Expense Journal Entry
Compensation expenses are incurred by a company to pay its employees for their services. These expenses can include salaries, wages, bonuses, and other forms of employee compensation. Below is an example of a journal entry for recording compensation expenses.
Scenario: Monthly Salary Payment
Assume a company pays its employees a total monthly salary of ₹500,000. The company deducts ₹50,000 for income tax and ₹20,000 for employee provident fund contributions before disbursing the net salary.
Journal Entry
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Salaries Expense A/c | 500,000 | |
| To Income Tax Payable A/c | 50,000 | |
| To Provident Fund Payable A/c | 20,000 | |
| To Cash/Bank A/c | 430,000 | |
| (Being salaries paid to employees with deductions for income tax and provident fund) |
Explanation:
- Debit Salaries Expense A/c: The total salary expense is recognized.
- Credit Income Tax Payable A/c: The amount deducted for income tax is recorded as a liability.
- Credit Provident Fund Payable A/c: The amount deducted for provident fund contributions is recorded as a liability.
- Credit Cash/Bank A/c: The net salary paid to employees after deductions is recorded.
