7 October 2004

Accounting for my salary

The problem is this: how to record my salary income such that I can keep track of deductions taken by my employer: tax withholding, HECS (higher education) debt and superannuation? I thought about it at lunchtime, and now have a draft proposal which is fairly simple.

An example of my proposal is shown below. It assumes I earn a gross salary of $1300, with deductions of $100 income tax, $100 HECS repayment and $100 employer superannuation contribution:

AccountTypeDrCr
Cash at bankAsset1000
Tax withheldAsset100
SuperannuationAsset100
HECS debtLiability100
Gross salaryIncome1300

Possible advantages:

  • Gross salary and all deductions get recorded in their own accounts
  • Tax withheld is seen as an asset, like a prepaid expense
  • Superannuation counts as an asset
  • HECS deduction reduces my HECS liability account
  • Cash account doesn't get debited for the full amount, and then credited for all the deductions

Possible disadvantages:

  • No account tracks net salary specifically. However, obviously the amount that hits my bank account is my net salary.
  • Deductions from my salary aren't seen as income or expenses. That is, my statement of financial performance would only show my gross salary before the tax was written off as an expense. Even after this, it would look like I made my superannuation and HECS repayments as income.

The last point looks like a big issue with my proposal, now that I've written it down. But I think in financial terms it is probably accurate.

The solution here is obviously independent of the actual system used, so if any accounting nerds have any advice, please post a comment or send an email.