The correct answer is Salaries paid are shown on the debit side of the Profit and Loss Account but outstanding salaries (when given in additional information) is shown on the Liabilities side of the Balance Sheet and are added to salaries in the Profit and Loss Account. Important Points Salaries paid to the employees are an expense of the business therefore they are debited. Since this is not a manufacturing expense, they are debited to the Profit & Loss account. Salary Outstanding A/c stands for a Representative Personal Account, which represents a group of people to whom a certain amount of salary is due. As the salaries are not paid but have been due in the current year, these are, therefore, added to salaries account and being a liability on the business, are shown as a liability in the Balance Sheet. Additional Information Balance Sheet: A balance sheet is a financial statement of a company that represents the values of its assets, liabilities, and Shareholder's Equity at a specific time. It basically represents the financial position of a company. Profit & Loss Account: This is an account in a company's books to which gains and income are credited and expenses and losses are debited to reflect the net profit or loss for a certain period.