CONVERTIBLE PROMISSORY NOTE for salary deferral

[Dana7]

Greetings, Community,

I'm seeking advice on the appropriate journal entries for issuing a Convertible Promissory Note in lieu of an employee's salary deferral. For instance, the employee has postponed $11,000 of their salary from January 1, 2022, to November 30, 2022. On November 30, 2022, the company issued a Convertible Promissory Note amounting to $11,000, with the maturity date set for November 30, 2024.

For each month-end between January 1, 2022, and November 30, 2022, an expense accrual should take place as follows:

Debit: Deferred Compensation Expense $1,000
Credit: Salary Payable $1,000
Upon the issuance of the Convertible Promissory Note on November 30, 2022, the following entries are proposed:

As of November 30, 2022:

Debit: Deferred Compensation Expense $11,000
Credit: Salary Payable $11,000

Debit: Salary Payable $11,000
Credit: Convertible Promissory Note $11,000

Could you confirm if these entries are accurate and full? Additionally, should we account for any taxes?

Thank you.

[IRonMaN]

It's September and school is back in session and if I didn't know better that sounds an awful lot like homework.

[qbteachmt]

First, you've come to an income tax preparation community. Not payroll or bookkeeping.

Next, you asked a payroll question. Plain and simple deferring of payroll for company debt isn't really legal in the US. This could be payroll as usual, with the take home amount loaned to the employer. Or...

Salary Deferral could be part of a compensation plan, where it falls under retirement regulations for the portion deferred. Or...

You are asking about a restricted stock unit program. Or...

The issue of accounting for taxes or not cannot be answered here. There is not enough info. Let me offer this description:

"Deferred compensation plans allow employees to withhold a certain amount of their salaries or wages for a specific purpose. Deferred compensation plans can be qualified or non-qualified. Qualified plans fall under the Employee Retirement Income Security Act and include 401(k)s and 403(b)s."

Once you examine the specifics and apply the matrix of regulations, you might be able to answer this yourself. The web is not the place to get these answers, and at the least, you need to ask Payroll people.

This is not a question for Practice Advice, e.g. running your business.

Your teacher probably would frown on this use of the interwebs, as well.

[abctax55]

Jeff.... me thinks ya' sniffed out another one 😉