Salaries means the remuneration paid to the administration staff for their services rendered to business firm as per the terms and conditions of employment or under a special contract. Normally, the salaries are paid on a periodical basis.  Salaries include the following expenditures incurred by the business firm for administration staff:-

  • –  Wages
  • – Bonus
  • Commission paid to staff
  • – Various type of allowances
  • – Employer’s contribution to provident fund.
  • – Employer’s contribution to Employees State Insurance.
  • – Pension
  • – Gratuity
  • – Retrenchment expenses
  • – Leave salaries etc.

Accounting Treatment of Salaries

a) In case of payment made in cash or by cheques:-

Type of voucher to be prepared:- Cash or Bank Payment Voucher

Entry to be made:-

Debit:-    Salaries Account

Credit:-  Cash Account


Bank Account

b) In case of outstanding salaries:-

Type of voucher to be prepared:- Journal Voucher

Entry to be made:-

Debit:-   Salaries Account

Credit:-  Outstanding Expenses Account


Expenses Payable Account


Salaries Payable Account

 Treatment of Salaries in Final Accounts

Salaries for administration staff are treated as indirect expenses. Therefore these expenses are shown in expenses side of profit and loss account. Outstanding salaries are first, added to salaries account and then, these are shown in liabilities side of balance sheet.