A Compensation Expense Journal Entry is a bookkeeping process that records the cost associated with paying employees for services or goods provided. This entry is typically made during the period in which the money was paid out or when an employee earns vacation pay, sick pay, and other salary benefits. The journal will reflect the amount of money a company is spending to compensate their employees and may include details such as employee wages, bonuses, and taxes on the payroll. The information gathered in the journal can be used to create financial statements and inform management decisions about labor costs and budgeting. By accurately recording the compensation expenses each period, businesses can have a better understanding of how much they are spending and make sure they’re staying within their budget.