Jacky Singh (Assisstant) (107 Points)
07 March 2010I want to know that if three partners receive salary, then whether it would be dedusted from firm's capital a/c or added to partner's captial a/c or whatelse is done. Please I need to know this. Thanks in advance.
Dhruv
(Chartered Accountant)
(308 Points)
Replied 08 March 2010
See, there are two ways to handle payment of salary in accounts :
1) If you have paid the salary ( either by bank or by cash ) -- > then debit the salary account (indirect expenses) and credit the relevant bank account / cash account.
2) If you haven't paid the salary, but you are booking it as an expense -- > then debit the salary account (gets booked as an expense in the PnL), and credit the partner's capital account. Essentially, if salary is not paid, then it is a form of a liability of a firm which hasn't been paid yet, and since the firm is liable to the partners, crediting the capital account means that the firm owes this much amount to the partners ( essentially salary) .
Other treatment could be to keep it as outstanding liabilities, or salary payable in liabilities side of the balance sheet.
Hope this helps!
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