When I issue a payslip, then employee clearing account increase.its ok. But, I found expense account increase the same amount with showing payslip.
here is the screenshot:
What is the effect of Payment to employee for a payslip?
Payslip increase liability.
Payment increase expense.
I read the full guide.
@Mahfuzur_Rahman when you create a payslip, it’ll increase liability on BS and it’ll increase your salary expenses on your P&L. Payment is not in the picture here.
when you make payment for that payslip, it’ll decrease the amount from the liability.
Please read and understand as @eko advised you.
Payslip effect
Debit/Increase expense (Salary account in this case)
Credit/Increase liability (Employee clearing account)
Pay wages
Debit/Decrease Liability (Employee clearing account)
Credit/Decrease Bank account(Whatever bank or cash account you made the payment from)
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You haven not made a payment against the payslip, you only issued a payslip. Only when you make an actual payment will the liability clear. Similar to Purchase invoices the expense will be recorded at the moment you create the Payslip but that does not mean you have paid it yet.
So, why it is showing in expense? Note: I’m not create any payment.
You have incurred the expense by creating the payslip and creating the liability to the employee
The P & L is affected as soon as you create the liability
That is the principle of accrual accounting compared to cash accounting. The expense gets recorded at the moment of issuing the payslip. You will notice that once you clear the liability through actual payment of the payslip that this payment will not show in the Profit and Loss account as it already appeared there.
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Thanks. But, in the cash basis summary showing the same.
That is a characteristic and shortcoming of cash basis accounting (among others). If you are not immediately paying employees for earnings recorded on payslips, you have a problem. You have incurred the expense without paying it. But you are still liable to the employee. Where are all those credits and debits supposed to go?
This is the reason cash basis accounting requires more than just switching when you recognize income and expenses. It requires significant alteration of many accounting practices. Otherwise, your financial statements misrepresent position and performance, at least temporarily.
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