Salary expenses are typically recorded as a debit in accounting. Salaries represent a significant component of business operations, and accurately recording them is vital for financial clarity.
In this following guide, we are going to discuss whether salary expense is a debit or credit. So let’s have a look:
Understanding Debits and Credits:
In accounting, we use a system of debits and credits to record financial transactions. Think of debits and credits like the left and right sides of a balance scale. Debits increase certain accounts, while credits decrease them.
The credit to balance the debit for paying a salary expense would be a reduction in cash or an increase in accounts payable, which would fall under liabilities. Specifically:
- When a company pay salary, it records a debit to the Salaries Expense account, which is an expense account that reduces the company’s net income.
- To balance this debit to Salaries Expense, the credit would be a reduction in Cash, as the company is using its cash to pay the salaries. This credit to cash is a liability account.
- Alternatively, if the salaries have not yet been paid but have been accrued, the credit would be to Accounts Payable, which is also a liability account, as the company now owes this money to its employees.
The credit does not fall under equity or revenue accounts. Equity accounts represent the ownership interest in the company, while revenue accounts record the company’s earnings from its normal business activities. Paying salaries is an operating expense, not a revenue-generating activity. Don’t miss out! Check our previously published article on Do Salaried Employees get overtime pay?
So, is Salary Expense a Debit or Credit?
When we discuss salary expenses, we consider them as a debit. This is because salaries are an expense to the business. Expenses increase with debits, so when you pay your employees, you debit the Salary Expense account.
Debit all expenses and losses and credit all incomes and gains. So the normal balance of any expense that a company makes is a debit balance. Hence it can be said that the normal balance of the salaries and wages expenses is a debit balance.
Let’s break it down step by step:
Debit Salary Expense:
As an employee or owner, when you give salary to your employees, you are suffer an expense. Debit the Salary Expense account to identify an upsurge in the whole quantity of money spent on salaries.
Credit Cash or Bank:
You also require to deploy your money in cash or Bank account. This is because you are spending money. Credits decrease assets, and since cash is an asset, you credit it. Make sure to check our previously published article on How do you Calculate Salary Pay?
Example Transaction:
Imagine your business pays $5,000 in salaries. Here’s how you would record it:
Debit Salary Expense: +$5,000
Credit Cash: -$5,000
Frequently Asked Questions
Salary account is debited in case of payment of salaries to employees. Q. account is debited when salaries are paid to employees.
If you get your income, it’s an earning and so it’s called salary is being credited into your account. There may be one more reason: In accordance with banks, they apply the credit to increment /increase(here in your bank account) and debit is known as decrement (suppose you have paid in by your debit card).
What are the Golden Rules of Accounting? 1) Debit what comes in – credit what goes out. 2) Credit the giver and Debit the Receiver. 3) Credit all income and debit all expenses.
This approach is also called the American approach. Under this approach transactions are recorded based on the accounting equation, i.e., Assets = Liabilities + Capital. This equation of accounting is basically a statement of equality between the debits and the credits.
The Financial Accounting Standards Board (FASB) sets the US accounting rules. This institution was established in 1973. It is a self-sufficient, private- sector, non profit organization located in Norwalk, Connecticut. This institution sets and makes financial accounting and reporting standards for public and private corporations and for non profit organizations that usually follow.
Conclusion
In conclusion, salary expenses are considered as a debit in your accounting books. Remember, the key is to keep it simple and clear. So I hope now you will not get confused between this. Check this: How to Get Income from Dividends?
