Learn the journal entry for salary earned by employees but not yet paid. This free worked lesson for Class 11 and Class 12 commerce students, beginners and international accounting learners includes the verified Hindi–English Short and complete answer checks.
What is outstanding salary?
Outstanding salary (salary payable) is an expense relating to the current accounting period that the business has not paid by the reporting date. Under accrual accounting, the business records the salary expense when employees earn it, not merely when cash leaves the bank. The unpaid amount becomes a current liability.
Worked example: ₹4,000 salary is due
Assume employees have earned ₹4,000 during October, the salary remains unpaid on 31 October, and the business uses accrual accounting. The adjusting journal entry on 31 October is:
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Salary Expense A/c | 4,000 | — |
| Outstanding Salary A/c (Salary Payable) | — | 4,000 |
Journal: Salary Expense A/c Dr. ₹4,000; To Outstanding Salary A/c ₹4,000. (Being salary expense accrued but not yet paid.)
The debit increases salary expense, which reduces the period’s profit and equity. The credit increases the liability owed to employees. There is no cash or bank entry on 31 October because payment has not happened.
What happens when the business pays the salary?
Suppose the ₹4,000 is paid by bank transfer on 5 November. If the liability was already recorded, the payment entry is:
| Account | Debit (₹) | Credit (₹) |
|---|---|---|
| Outstanding Salary A/c | 4,000 | — |
| Bank A/c | — | 4,000 |
Journal: Outstanding Salary A/c Dr. ₹4,000; To Bank A/c ₹4,000. The liability decreases, and the bank balance decreases. Do not debit salary expense again for the same ₹4,000, or the expense would be double-counted.
Outstanding salary versus prepaid salary
Outstanding salary: Employees have earned the amount, but payment is still due. It is a liability. Prepaid salary: The business has paid an amount for future employee services not yet received. To the extent it qualifies for recognition, it is a prepaid expense (asset). They are not interchangeable.
Common mistakes to avoid
- Crediting Cash or Bank when the salary is merely due, not paid.
- Treating outstanding salary as revenue rather than a liability.
- Recording the same salary expense again when settling a previously recorded payable.
- Assuming the same accrual adjustment applies unchanged under cash-basis accounting; the example explicitly uses accrual accounting.
Practice questions with answers
Question 1: Salary of ₹6,500 has been earned by staff but is unpaid at year-end. What is the adjustment? Answer: Salary Expense A/c Dr. ₹6,500; To Outstanding Salary A/c ₹6,500.
Question 2: The above ₹6,500 payable is paid by bank next month. What is the entry? Answer: Outstanding Salary A/c Dr. ₹6,500; To Bank A/c ₹6,500.
Question 3: A business owes ₹2,000 salary and has paid ₹3,000 salary for the current period. What is the current period’s total salary expense, assuming there are no other salary transactions? Answer: ₹5,000. The ₹2,000 payable is a liability, not an extra cash payment.
Why the expense and liability appear together
Outstanding salary belongs to the current accounting period because employees have already provided the service, even though the business has not yet paid the cash. Under accrual accounting, the expense is recognised when it is incurred—not only when money leaves the bank.
₹4,000 year-end adjustment
Salary A/c Dr ₹4,000
To Outstanding Salary A/c ₹4,000
This single adjustment records two different effects: Salary Expense increases by ₹4,000 in the Profit and Loss Account, while Outstanding Salary appears as a ₹4,000 current liability in the Balance Sheet. The liability shows the amount still payable to employees.
What happens when the old salary is paid?
When that ₹4,000 is paid in the next period, record Outstanding Salary A/c Dr ₹4,000; To Cash/Bank A/c ₹4,000. Do not debit Salary Expense again for the same old amount, because the expense was already recognised in the previous period.
Double-counting check: If ₹3,000 was paid for the current period and ₹2,000 remains unpaid at period-end, total current-period Salary Expense is ₹5,000. The ₹2,000 unpaid portion is also the closing liability; it is not an additional ₹2,000 expense on top of the ₹5,000 total.
Learner self-check: Ask (1) Has the employee service already been received? (2) Does any amount remain unpaid at the reporting date? (3) Has the same expense already been recorded? These three questions prevent both omitted liabilities and duplicate salary expense.
Continue learning
Start with Why Businesses Need Accounting, review Debit and Credit Explained, practise Journal Entries Step by Step, or explore the Free Accounting Video Lessons Hub.
Author: Ejaj Abubakar Rangunwala | Rangunwala’s Academy. Educational illustration using standard accrual-accounting principles; not presented as a quotation from any proprietary book.