Why? How can the Employee be liable to the Business for an Earning item on their Payslip? I assume the Business receives Income from some kind of activity by that Employee that makes the company to have to Pay a Commission to that Employee as would be specified in the Payroll Earning items. The Commission is thus an Expense for the Business in P&L as @Joe91 points out because the Business pays this to the Employee (the Employee earns it!).
@Joe91 Yes, the commissions are posted in expense on the month they are accrued.
@eko Earning items are tagged with P&L account only. Below is the illustration why I requested that liability account be added as an option for an earning account.
Commissions are accrued each month as mentioned.
June 30, 2023
(Dr) Commission Expense xx
(Cr) Commissions Payable xx
and later on are carried to payslip the next month.
July 30, 2023
(Dr) Salaries Expense xx
(Dr) Commissions Payable xx
(Cr) Salaries Payable xx
June 30, 2023
(Dr) Commission Expense xx
(Cr) Commissions Payable xx
Then at the beginning of the following accounting period, i.e. July 1, 2023 you need to reverse it, i.e.
July 1, 2023
(Dr) Commissions Payable xx
(Cr) Commission Payable xx
You enter it as @Joe91 explained in the Payslip for that month 30 July 2023 and together with salary is an earnings item.
That could cause a timing problem as the commission on the July payslips will be for the commission earned in June
It would seem unlikely that the June commissions would be calculated in time for the June payrolls
But you could include them on the payslip not as Earnings Items but as Deduction Item - this would allow you to select the Commissions Payable account but you would have to enter the amounts as negative deductions
Unfortunately, while that works from an accounting point of view, it doesn’t show up well on the payslip - it’s quite confusing in fact
Not if you do the step explained to reverse it on the first day of the next month and then follow normal payslip procedures. You already know at the beginning of that month what is to be paid on the payslip in the new month.
you are confusing your self with reversal. The problem with what you are proposing is that if you record June 2023 commission expense as earning item for July2023 payslip is that it will be recorded in the P&L on the month of July rather than June, which is the point of accrual.
The request here is to be able to add liability account - commission payable to be exact, as earning item because we will carry the previous month’s commission as breakdown of salary for the current month
This I am doing right now. But it’s just weird to look at the Payslip, thus if the request can be done by @lubos
@Ibadion, did you really consult the link I provided from Accounting tools? You now seem to want to use cash accounting principles and not accrue but expend the Commission as if the Employee owes you until you pay them in the next month. You in any case need to consult your tax authorities about the maximum time you can have it “accrued” before you pay it out.
I have said all that was relevant to this topic, including to not support your request to include Payslip Earning items in a Liability account as that is just not correct accounting for it.
There is no need to reverse as the expense is ought to be recorded in June and not on July. What standards of accounting are you referring to that makes it a not correct accounting? It is a matter of fact correct way of doing it rather than what you propose. As seconded by @Joe91, if you do this, then it will have a timing problem as it would a affect commission on July.
Say for example we follow what you mentioned, if commissions are 30,000 and 40,000, june and july respectively, It will make your commission expense on July 10,000 because of your reversal entry.
The correct way to do this using the current options in Manager is
Calculate the Sales commission due in June and enter a journal entry to cover the whole amount
30 June 2023
Dr Sales Commission expense 15,000
Cr Sales Commission Payable liabiltiy 15,000
Then in July, enter the Sales Commission as earning item in the payslips which will debit the Sales Commission expense account
And reverse the journal entry on the day you create the payslips - this will cancel out the effect of the payslips on the Sales Commission expense account
This way the payslips will record the correct commissions and the monthly Sales Commission expenses will be recorded correctly
This is incorrect. The expense in essence was made in the previous month based on income in that month so to “carry” it over the reversal needs to be at the beginning of the next accounting period and not when Payslip is issued in that Accounting period. If anything this will prevent errors for that accounting period.
The thinking behind reversing it when the payslips are generated instead of on 1st of month is that this will prevent the Sales Commission expense account showing negative balances between 1st and payslip generation date