Which financial statement shows salaries expense

Looking at the income statement columns, we see that all revenue and expense accounts are listed in either the debit or credit column. This is a reminder that the income statement itself does not organize information into debits and credits, but we do use this presentation on a column worksheet.

You will notice that when debit and credit income statement columns are totaled, the balances are not the same. Why do they not balance? If the debit and credit columns equal each other, it means the expenses equal the revenues. This would happen if a company broke even, meaning the company did not make or lose any money.

If there is a difference between the two numbers, that difference is the amount of net income, or net loss, the company has earned. The credit side represents revenues. This means revenues exceed expenses, thus giving the company a net income. If the debit column were larger, this would mean the expenses were larger than revenues, leading to a net loss. You want to calculate the net income and enter it onto the worksheet.

When entering net income, it should be written in the column with the lower total. In this instance, that would be the debit side. This balances the two columns for the income statement. We now consider the last two columns for the balance sheet. In these columns we record all asset, liability, and equity accounts. When adding the total debits and credits, you notice they do not balance. How do we get the columns to balance? Treat the income statement and balance sheet columns like a double-entry accounting system, where if you have a debit on the income statement side, you must have a credit equaling the same amount on the credit side.

You may notice that dividends are included in our column worksheet balance sheet columns even though this account is not included on a balance sheet. So why is it included here? There is actually a very good reason we put dividends in the balance sheet columns. When you prepare a balance sheet, you must first have the most updated retained earnings balance.

If you look at the worksheet for Printing Plus, you will notice there is no retained earnings account. That is because they just started business this month and have no beginning retained earnings balance. If you look in the balance sheet columns, we do have the new, up-to-date retained earnings, but it is spread out through two numbers.

You will not see a similarity between the column worksheet and the balance sheet, because the column worksheet is categorizing all accounts by the type of balance they have, debit or credit. The balance sheet is classifying the accounts by type of accounts, assets and contra assets, liabilities, and equity. Even though they are the same numbers in the accounts, the totals on the worksheet and the totals on the balance sheet will be different because of the different presentation methods.

Publicly traded companies release their financial statements quarterly for open viewing by the general public, which can usually be viewed on their websites. One such company is Alphabet, Inc. Due to these activities, they have a complex list of activities and expenses to note.

These companies also have to comply with specific reporting regulations. So bigger companies opt for multi-step income statements. In this system, operating revenues, operating expenses, and gains are separated from non-operating expenses, non-operating revenues, and losses. Profitability is represented at four levels: gross, operating, pre-tax, and post-tax.

The following example uses the same company data as the single-step income statement. It gives you timely updates because it is generated much more frequently than any other statement. This information helps you make timely decisions to make sure that your business is on a good financial footing. This site uses Akismet to reduce spam.

Learn how your comment data is processed. Thank you for this, Im a marketer by qualification who has just moved into Finance! This was easy to understand! Learn More. Guides 5 min read 5 comments. Reading Time: 5 minutes What is income statement? Importance of an income statement An income statement helps business owners decide whether they can generate profit by increasing revenues, by decreasing costs, or both.

Who uses an income statement? Income statement format with the major components The following information is covered in an income statement. Cash Flow Statement - Definition and Importance. Gross Profit vs Net Profit - How are they different. Cancel reply. If your business loses money year after year, you'll have to take out loans or use credit cards to make ends meet.

When you borrow money, you increase the liabilities shown on your balance sheet. Similarly, if your business consistently earns a profit, you'll be able to save money or make investments that show up in the assets column of your balance sheet. The relationship between the sums you earn on your income statement and the assets and liabilities shown on your balance sheet are not direct, however.

If you buy large pieces of equipment that you depreciate, the money goes out all at once — but your income statement will show the expenditure taking place over time. The equipment you purchase will show up on your balance sheet as an asset with a value that declines over the next few years, but the correlation between these two processes is neither straightforward nor direct.

Similarly, if you buy inventory that you end up wasting, the expenditure doesn't lead to a corresponding asset because you haven't bought anything of lasting value. If your business is healthy and successful, the amounts you spend on salaries, wages and operating expenses add value to your bottom line. Salary expense is the wage that an employee earned during the period, irrespective of whether it is paid or not by the company.

In other words, it is all of the expenses incurred by the company during the period. For example, if you read the income statement from 1 Jan to 31 December , then in the line of salary expenses shown in the income are all of the expenses that the company incurred. Salary payable is a liability account keeping the balance of all the outstanding wages.

If the salary expenses during the year are USD,,, but out o this amount, only USD80,, were paid at the end of the year, then the different amount of USD20,, should be the salary payable. In short, the difference between salary expense and salary payable is that the salary expense is the total expense for the period while the salary payable is only the amount of remuneration that is due.

Salary payable is classified as a current liability account under the head of current liabilities on the balance sheet. All the general rules of accounting are also applicable to this account.

When the salaries expenses are recognized, but the company has not paid yet to its staff, the following journal entries should be recorded:. Salary expenses are the income statement account, and it records all of the salary expenses that occur during the period or year.

However, the salary payable account is the balance sheet account that reports only the unpaid amount.