What Is Prepaid Salary In Accounting - Prepaid Salary Journal Entry

Prepaid Salaries Journal Entries

We already studied about Accrued Salaries Journal Entry, but here we will study about Prepaid Salary Journal Entry.

It is the amount of Salary Paid in advance. As it is paid in advance, so it becomes the Current Assets of the company. Prepaid Salary is an example of Prepaid Expenses or Expenses Paid In Advance.

2 Methods Of Prepaid Salaries

There are two Cases/ Methods of recording Prepaid Salary:

(i) When Initially, It Is Recorded As An Asset

(ii) When Initially, It Is Recorded As An Expense

In the first case, the Journal Entry is as shown below:

                                            Prepaid Salary a/c   XXX

                                                                         Cash / Bank a/c  XXX

(Advance Salary Paid For the Month)

At the end of accounting period, when the company actually receives the services, then Prepaid Salary Account is credited and Salary Expense Account is debited.

In the Second Method, the entry is recorded as:

                                                 Salary Expense a/c    XXX

                                                                              Cash a/c    XXX

(Paid Salary In Advance)

At the end of month, the portion of Salary which is paid in advance is transferred to Prepaid Salary Account as shown below:

                                       Prepaid Salary a/c   XXX

                                                                    Salary Expense a/c   XXX

(Prepaid Salary Recorded In The Journal)

Under both methods, the results should be the same.