Chapter 11
Payroll
331
Journal Page 1
Date
2015
account title and explanation Debit credit
Jan 31 Salaries Expense
4,500.00
CPP Payable
208.31
EI Payable
84.60
Income Tax Payable
802.90
Union Dues Payable
50.00
Health Insurance Payable
15.00
Salaries Payable
3,339.19
To record employee payroll
CPP PAYABLE
INCOME TAXES PAYABLE
HEALTH INSURANCE PAYABLE
EI PAYABLE
UNION DUES PAYABLE
SALARIES PAYABLE
-
-
-
-
-
-
+
+
+
+
+
+
208.31
802.90
15.00
84.60
50.00
3,339.19
______________
FIGURE 11.3
The transaction shows the salaries expense broken down into various liability amounts. All the
deductions will be recorded in liability accounts until it is time to send these amounts to the insti-
tutions to which they are owed. In a perfect world with no liabilities, all the amounts withheld from
the employee’s paycheque would immediately be paid to the CRA and others with cash. In reality,
there is usually a difference in timing from withholding the deductions to actually sending them to
the CRA and others. Businesses act as an intermediary taking the money from the employee and
sending it to the institutions at a later date.The business effectively has a debt (liability) for a short
period of time until it sends the money where it is supposed to go.
The net pay may be recorded as a liability (salaries payable) if the actual cash payment will happen
a few days later. If however the employee is paid immediately, cash would be credited for the net
pay amount instead of salaries payable.
Vacation pay must also be accounted for. We will assume the business must pay 4% of the gross
pay as vacation pay and the business accrues the vacation pay for its employees. This means $180
($4,500 x 4%) will be accrued for Glen Booth.The journal entry for this accrual is shown in Figure
11.4.
Journal Page 1
Date
2015
account title and explanation Debit credit
Jan 31 Vacation Pay Expense
180
Vacation Pay Payable
180
To accrue vacation pay
VACATION PAY PAYABLE
-
+
180
______________
FIGURE 11.4
The amount recorded as vacation pay will accrue over time.The amount in the liability account will
grow until the employee takes time off. At that point, the vacation pay liability will decrease as the
