sushant gurav (Accountant) (396 Points)
21 June 2011Sir,
Please tell me sir, once advance salary is given to staff , how we have a adjust at the end of the year if advance given is not recovered in that particular year.
B'cause i have made 02 accounts 1) salaries and wages account and 2) Advance salary.
Kindly guide .
Regards.
CA ADITYA SHARMA
(CA IN PRACTICE )
(16719 Points)
Replied 21 June 2011
closing advance given should be shown under loan and advances
Desperado
(Cost And Management Accountant)
(129 Points)
Replied 21 June 2011
Dear,
Normally, advance salary account is not created, and any advance provided to any employee is debited to his account. In the month end, when salaries of employees become due, the following entry is made;
Salary & Wages Account -----Debit (with a total shown in credit side)
Employee account (account of each employee is created and credited with his dues to be paid at the month end) -------Credited.
Suppose an employee, on 21st June, has been provided 5,000 as advance salary out of his monthly salary of 20,000, then in this case, employee account is debited and cash/bank is credited with 5,000 on 21st June, and at the month end i.e. on 30th June, entry to be made is;
Salaries & Wages account -----20,000 Debited
Employee Account ----------------20,000 Credited
The ultimately effect over employee account will be 15,000 in credit side, then the last entry, to be passed, should be;
Employee Account ---------15,000 Debited
Cash / Bank ------------------15,000 Credited.
As far as your case is concerned, suppose in contrary to the aforesaid explanation, if advance salary(which can never be the case, since in this case Loan Account is created and not advance account) is more than salary to be paid, then employee account will show a debit balance at the month end, which will show reduced effect on total salary outstanding in the year end in the balance sheet.
Alternatively, As in your case, Advance salary account will be shown under current assets in the balance sheet at year end, and the same will be offset by salary / cash account in the next period.
Let me know, if confusion still exists.
Best Regards,
Desperado.
CAclubindia
