AA-64 Accrued Salary in Income Tax Return

The accrued salary (June salary paid in July) will reflect in your: - Income Statement (Profit & Loss Account): - Inflow: Accrued salary (June salary) will be part of your total income for the respective year. - Balance Sheet: - Asset: Cash in hand or Bank account: The amount will be reflected here once you receive the salary. - Liability: Accrued expenses (if any) related to the salary will be reflected here. After paying expenses, the balance amount, including the accrued salary, will go under: - Asset: Cash in hand or Bank account (reduced by expenses paid) Remember, the accrued salary is part of your income, and once received, it will be reflected in your cash or bank account. Expenses are separate and will reduce your cash or bank balance. Here's a simple example: - Income: ₹100 (including ₹20 accrued salary) - Expenses: ₹50 - Cash/Bank account: ₹50 (�100 - ₹50) - Accrued expenses: ₹20 (reflected as a liability) Once you receive the accrued salary: - Cash/Bank account: ₹70 (�50 + ₹20)

Dear Rama Chary Rachakonda Sir,

Thank you very much for your detailed, informative and objective reply.

Further, I am also thank full for your precious time to reply this query.

I have some points which are as under:

1-Accrued expenses means expenses which incur but not paid. in your example accursed expense function is not clear. please educate.

2-As far as accrued salary is concerned, when filling return, will total salary amount including accrued salary show in inflow and after minus outflow, will we have to show balance amount in cash (which include accrued salary amount) ? because if we show it in bank account it will not match with bank statement closing balance of March end.
on other hand, if we show it cash but salary receive in bank how should we balance it ?
please educate about both condition.

3- Please let me know; should salary person make P&L and Balance Sheet for filling their return ? I am asking this because preparation P&L and Balance Sheet require double entry method is not easy for layman because it require double entry system proper knowledge. So if a layman want to file his return by himself how can he make his financial details?

I will be very thank full and appreciate your kind reply on my above points.

When filing your tax return, you should report the total salary amount, including accrued salary, in the "Income from Salary" section. This will be reflected in the "Inflow" section of your cash flow statement. However, when calculating your tax liability, you will need to exclude the accrued salary amount, as it has not been actually received. So, in the "Outflow" section, you will subtract the accrued salary amount from the total salary amount. The balance amount shown in cash will include the accrued salary amount, but this will be adjusted in the next year's tax return when the accrued salary is actually received. Here's an example: Inflow: Total Salary (including accrued salary) = Rs. 100,000 Outflow: Deductions (e.g., TDS, PF) = Rs. 20,000 Outflow: Accrued Salary (not actually received) = Rs. 15,000 Taxable Income = Rs. 100,000 - Rs. 20,000 - Rs. 15,000 = Rs. 65,000 Next year, when the accrued salary is actually received, you will report it as income and pay tax on it. Please consult a tax professional or expert to ensure accurate reporting and compliance with tax regulations.

Dear Rama Chary Rachakonda,

Thanks again for your detailed and objective reply.

Below are my points in response of your reply.

1-I think if I put total salary amount including accrued salary amount in system, system will calculate the tax liability on it so I have to pay all liability same time. I think I do not need to report accrued salary in next year income because I have already report it and have paid the tax. Actually, I want to know how should we show accrued salary amount in our Assets because it is showing in inflow and after deducting expenses by outflow it include in remaining balance figure.

2-I consult the tax consultants but most of them not interested to reply my queries they simply asked my documents and said that "hum kr lenge". Definitely they consider my as a upcoming client for income source but being professional accountnt, I want to learn this concept so that I can file my return with full satisfaction and aware of my wealth well.

Can I request you to please get answer of above query from your friend, colleagues or professional circle ? because I believe anybody must have knowledge about it and its answer will be beneficial for not only me and you but also everybody who wiil read this post.

Thanks once again for your precious time and efforts for reply.

Kind response awaited from Ram Chary Rachakonda Sir.

You're correct that if you report the total salary amount, including accrued salary, in the current year, the system will calculate tax liability on it, and you'll need to pay the tax liability immediately.

 As for reporting accrued salary in the next year's income, you're correct again! Since you've already reported it and paid taxes on it, you don't need to report it again in the next year.

Regarding showing accrued salary in your assets, you should recognize it as a current asset, specifically as "Accrued Income" or "Deferred Income" on your balance sheet.

This represents the amount earned but not yet received.

 Here's how to record it: Debit: Accrued Income (Asset) = ₹XXXX Credit: Salary Expense (Expense) = ₹XXXX

When you receive the accrued salary, you'll reverse the entry: Debit: Cash (Asset) = ₹XXXX Credit: Accrued Income (Asset) = ₹XXXX This way, you'll accurately reflect the accrued salary in your assets and ensure proper accounting 

Dear Ram Chary Rachakonda Sir,

First of all sorry for late response due to my busyness. Second, thanks once again for your kind reply.

I understand the matter. Thanks a lot for your precious time to reply my each query to educate me.