Question

Wong Ltd paid salaries for August: gross $3,500, PAYE $500. PAYE is payable on the 20th September. The journal entry to record this transaction is:

Select one:
a. Debit Salaries Expense $3,500; Credit Cash $3,500
b. Debit Salaries Expense $3,500; Credit PAYE Payable $500 and Cash $3,000
c. Debit Salaries Expense $3,000; Credit Cash $3,000
d. Debit Salaries Expense $3,000, and PAYE Payable $500; Credit Cash $3,500

Answer 1

To record Wong Ltd's salary payment, debit salary expenses for the gross amount ($3,500), credit PAYE Payable for the tax withheld ($500), and credit Cash for the net amount paid ($3,000).

Step-by-step explanation:

To record the salary payment in Wong Ltd's journal, one must account for gross salaries, the deduction for PAYE (Pay-As-You-Earn), and the net amount paid out in cash. The correct entry for this transaction would be to Debit Salaries Expense by the gross amount of $3,500 to reflect the total salary expense for August. Then, you would Credit PAYE Payable by $500, which represents the amount of PAYE tax withheld from the employees' salaries and is a liability that will be paid in the future (on the 20th of September). Finally, you would Credit Cash for the net amount paid to employees, which is $3,000 ($3,500 gross salary minus the $500 PAYE tax payable). Therefore, the journal entry would be as follows:

• Debit Salaries Expense $3,500;
• Credit PAYE Payable $500;
• Credit Cash $3,000.

This entry ensures that the salary expense is accurately recorded while accounting for the PAYE liability and the actual cash outflow.