What Does "Gross Salary" Mean?

Written by kirk thomason
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Salary is a payment workers receive for their labour. Most companies report salary as a fixed cost. Salary does not change; unless the employee is given a raise, it remains the same for each month during the year. Employees receiving salary can work more hours without extra pay, making this method of payment beneficial to companies. Accounting practices call for the reporting of gross and net salary within a business.

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Defined

Gross salary includes the total salary, plus commissions or bonuses an employee receives for a single period. Commissions and bonuses are typically variable, as companies can change these amounts based on individual performance. Gross salary does not include any deductions or taxes removed from the paycheck.

Business Reporting

Companies must report gross salary as a payroll expense for qualifying employees. Managers often earn a salary for their work. If the total gross salary for all managers is £3,250, then this is the payroll expense reported by the company. Companies report gross salary as an expense because it is the agreed-upon rate for specific labour.

Deductions

Two groups of required deductions exist for a salary. The removal of these deductions takes the gross reported salary to net salary. Federal income tax is the first of these deductions. It represents individuals taxes owed to the federal government. The Federal Insurance Contributions Act is the second deduction. This includes payments for Social Security and Medicare.

General Ledger Entries

Journal entries are fairly standard for posting gross salary. Companies will debit salaries' expense for the gross amount and credit several payable accounts. The payable accounts contain information for payroll taxes owed to government agencies and cash due to employees. When issuing checks to employees, the company will debit salaries payable and credit cash. Remitting monies owed to government agencies will have similar entries recorded in the general ledger.

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