Chapter 5
The Accounting Cycle: Adjustments
110
Since the salary payment is owed to the employee, we will use a liability account called salaries
payable to track the amount owing.
The $500 balance in the liability account will be paid at the next pay date. Thus, on October 7,
the business will pay the employee their salary of $1,000. The accrued amount in the liability
account will be cleared out since the business is paying the debt to the employee. Only $500 will
be recorded as an expense, since we only need to record the salary expense for the time worked in
October.The journal entry for this transaction is shown in Figure 5.6.
____________
FIGURE 5.6
BALANCE SHEET
LIABILITIES
ACCOUNTS
PAYABLE
SALARIES
PAYABLE
BANK LOAN
INCOME STATEMENT
EXPENSES
SERVICE REVENUE
DEPRECIATION
INSURANCE
SALARIES
RENT
Owner’s equity decreases by $500
ASSETS
CASH
OFFICE
SUPPLIES
ACCOUNTS
RECEIVABLE
+ $500 CR
+ $500 DR
journal
Page 1
date
2016
account title and explanation Pr debit credit
Sep 30 Salaries Expense
500
Salaries Payable
500
To accrue salaries owing
____________
FIGURE 5.5
journal
Page 1
date
2016
account title and explanation Pr debit credit
Oct 7 Salaries Expense
500
Salaries Payable
500
Cash
1,000
To record payment of salaries
owing
BALANCE SHEET
LIABILITIES
ACCOUNTS
PAYABLE
SALARIES
PAYABLE
BANK LOAN
INCOME STATEMENT
EXPENSES
SERVICE REVENUE
DEPRECIATION
INSURANCE
SALARIES
RENT
Owner’s equity decreases by $500
ASSETS
CASH
OFFICE
SUPPLIES
ACCOUNTS
RECEIVABLE
- $500 DR
- $1,000 CR
+ $500 DR
