Question

November 1, 2017

The investors of the Peavy’s Cleaning Service appointed three individuals to the company’s Board of Directors. The board will meet once every quarter to review the operations and set overall policy for the company, but it will not be involved in the day to day operations. Mark is appointed CEO of the corporation. The board appointed a clerk-secretary to assist Mark in his duties. The clerk-secretary will not receive any compensation.    Mark is allowed to draw up to $1500 per month as a personal dividend but the Board will decide to pay shareholders a normal dividend.

What is the journal entry?

Answer 1

Generally, salary is paid to employees. CEO is also employee of the company. Based on it journal entry should be:

Salary a/c Dr $1500

To Salary Payable a/c $1500

(Being employee salary due)

Salary Payable a/c Dr $1500

To Bank a/c $1500

(Being employee salary paid)

P&l a/c Dr $1500

To Salary a/c $1500

(Being expense debited to p&l a/c)

But,if salary is treated as dividend to employee. CEO is also employee of the company. Based on it journal entry should be:

Dividend a/c Dr $1500

To Dividend Payable a/c $1500

(Being employee dividend due)

Dividend Payable a/c Dr $1500

To Bank a/c $1500

(Being employee dividend paid)