Paid Salary by Cheque Journal Entry

Paid Salary by cheque is the business transaction the company issue the cheque to settle salary payment with the employee.

Salary is the amount of cash a company pays to the employee in exchange for employment. The company will pay a fixed amount to the employees base on the monthly or annual salary. In exchange, the employees have the roles and responsibilities to perform during the month.

At the end of the month, the company has to settle the payment to all employees. Most companies will make payments on a monthly basis as the employees need the cash to pay for their living as well.

The company can use the cash on hand, cash at bank or a cheque to settle the payment with employees. Most of the time, the company uses the cash at bank to transfer the salary to all employees. It allows the company to transfer many transactions at the same time. However, the company can use cash on hand, cheque, or other types of payment to settle the salary of staff.

If the company use cheque to pay for the employees’ salary, it will impact the salary expense and cash at the bank. The company has to record salary expenses as normal and the other side will impact the cash at the bank.

Journal Entry for Paid Salary by Cheque

When the company issue cheque to pay for the salary, it will increase the salary expense on income statement. It also reduces the amount of cash at the bank.

The journal entry is debiting salary expenses and credit cash at bank.

The transaction will increase the expense on the income statement and reduce the cash balance.

Example

Company ABC has employed 5 staff to provide services to the customers. Due to the small number of employees, company decides to pay them by using cheques. The company will write a cheque for each employee. During the month, company spends $ 20,000 to pay for the employees. Please prepare the journal entry for salary payment using cheque.

When paid by cheque, we need to reduce the cash at bank balance. It will be the bank reconciling item as the staff has not yet withdrawn the cash.

The journal entry is debiting salary expense $ 20,000 and credit cash at bank $ 20,000.