When hiring an employee, you generally incur various expenses, such as salaries, benefits, and possibly hiring costs like recruitment fees. For the sake of this example, let's assume you're recording the initial salary expense when hiring a new employee.
Explanation
When you hire an employee, you recognize a salary expense, and if the salary is paid in cash, you also record the reduction in your cash balance. However, salaries are usually accrued and paid later, so you might credit a liability account like "Salaries Payable."
Journal Entry Example
Let's assume you hired an employee with a monthly salary of ₹50,000. If you're recording the salary expense for the month but haven't paid it yet, the journal entry would be:
Date: [Current Date]
Particulars:
| Account Title | Debit (₹) | Credit (₹) |
|---|---|---|
| Salary Expense | 50,000 | |
| Salaries Payable | 50,000 |
Explanation:
- Salary Expense: This account is debited to record the expense incurred for the employee's salary.
- Salaries Payable: This account is credited to reflect the liability to pay the employee.
Payment of Salary
When you actually pay the salary, the entry would be:
Date: [Payment Date]
Particulars:
| Account Title | Debit (₹) | Credit (₹) |
|---|---|---|
| Salaries Payable | 50,000 | |
| Cash | 50,000 |
Explanation:
- Salaries Payable: This account is debited to reduce the liability.
- Cash: This account is credited to reflect the outflow of cash.
