Pay day is fortnightly and last falls on June 23 for the last accounting period, so on 30th June, a end of period adjusting entry is made to salaries payable for the employee Joe who earns $2000 per fortnight, and an entry is made to salaries payable for $1000, or 7 days of 14 days. Closing entries then close off the salary expense account to zero balance, as profit is calculated as sum of income minus sum of expenses and added to equity (owner capital ) , and any owner drawings are subtracted from capital. Then pay day occurs on 7th of July in the next period, but instead of debiting $2000 from salary expense as usual, $1000 is debited from salary payable (which removes the previous recorded liability), and $1000 is debited to salary expense , ( the other side of the double entry is a credit of $2000 to the cash-in-bank asset account , which is unchanged from the normal entry ). This non-regular apportioning of an entry to account for end of period adjustments is termed adjusting entries for subsequent periods. As a side note, this irregularity of entry can be avoided by making preempting adjusting entries at the beginning of a period , which are quite artificial : these are called reversing entries .
In the previous example, the opening reversing entry would be a debit to salary payable of $1000 and a credit of salary expense of $1000, leaving the salary expense account in the situation of being $1000 in credit (if there is only Joe on the payroll) since the salary expense account was cleared to zero with a closing entry from the last period (this situation seems artificial because expense accounts are normally in debit). However, this allows the normal pay day entry on the 7th July for $2000 dr to salary expense, to leave the salary expense account in the correct $1000 DR balance, given the other $1000 had been previously accounted for in the previous period ( it was recorded as the end of period accrued adjusting entry to salary expense mentioned at the start of the example ; even though there had been no exchange of cash at the time, the work had been done and therefore owed ).
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