Salaries and Wages Payable A credit or a debit? All you need to know!

As the name suggests, the wages expense account is an expense in nature. In accounting, it represents the outflow of economic resources during a period. In this explanation of payroll accounting we will highlight some of the federal and state payroll-related regulations and provide links to some of the government agencies and publications. We conclude with sample accounting entries that a company will record so that its financial statements reflect the accrual basis of accounting. The Fair Labor Standards Act (FLSA) requires businesses to maintain employee time tracking and pay records for at least two years. Changes to tax laws, adding or losing employees, and changes to tax withholdings may affect your total payroll costs from one pay period to the next.

We hope that this article has provided some clarification for you on the subjects of salaries and wages. There won’t be any variations in the salary payouts regardless of the number of hours worked. As a small business owner, you will do well to familiarize yourself with both general information and accounting concepts surrounding these compensation methods. The expense accounts listed above are usually sufficient to cater for all types of business expenditures. Insurance cost is not capitalized in the balance sheet because it is a recurring expense that is necessary to preserve rather than enhance an asset’s usefulness. Whenever a business suspects that it may not recover the full amount of its receivables, it should record the loss immediately in its income statement in line with the prudence concept.

Types of Expenses

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  • This accounting method does not post expenses based on cash outflows.
  • These are wages that are owed for the labor performed by your employees and are accounted as a liability until payday, when they become an expense.
  • The deduction is usually the fair market value of the goods or services transferred if you render non-cash compensation.
  • If your company offers paid time off (PTO) for employees, this should also be accounted for in accrued payroll.

Assume that a restaurant owes workers $3,000 in payroll for the last five days of March and that the next payroll date is April 5. Using the accrual method, the $3,000 wage expense posts on March 31, along with a $3,000 increase in wages payable. Calculate gross wages from an annual salary or hourly pay rate and hours worked. The gross wages you pay employees may be your largest payroll expense. Within QuickBooks, you can prepare a single journal entry to record all salaries. Save the entry, then press “Reverse” to create a reversing entry on the first day of the present month.

What about taxes and superannuation?

Therefore, the wages expense account does not constitute an asset. It is a part of a double-entry to record an increase in the wages incurred during a period. Sample journal entries will be shown for several pay periods for hourly-paid employees and for salaried employees. Processing payroll requires a company to complete several steps and calculate withholdings for employees. The accrual method allows you to match payroll expenses with revenue and posts payroll expenses and liabilities in the same period.


If you are under 23 and at least of school leaving age, you will earn the national minimum wage according to your age group. Those who are 21 and 22 years old earning the national minimum wage will also earn the same amount as those earning the national living wage from April. Alternatively, the corresponding transaction would have been a credit to the bank account in order to reflect the payment that was made in lieu of salaries and wages. When the wage expense is paid to the employee, it’s at this point that you need to make an adjusting entry to show that cash was paid. As with depreciation expense, repair and maintenance expenses need to be allocated between the cost of sales, selling expenses, and operating cost depending on where the assets are in use. The cost of a long term asset, such as a building, is not expensed entirely in a single accounting period.

Wage Expense

Liabilities create an outflow of economic benefits in the future. Therefore, some may think that the wages expense account falls within that category. However, that comes through a credit entry to the wages payable or accrued expenses accounts.

Accrued payroll is the process in which the amount of money a business owes or is owed accumulates over time. For example, you may have heard of accrual accounting, which differs from cash accounting. Payroll accrual refers to the payable funds that accumulate and that a business must pay their workers on payday. If you aren’t sure whether you are being paid the national minimum wage or the national living wage, you can use the minimum wage calculator on the government website to check.

Nature and Classification of Salaries and Wages

If your company offers paid time off (PTO) for employees, this should also be accounted for in accrued payroll. That’s because, even if the employee doesn’t take time off that particular month, your business still owes them the value of their PTO. This is especially true in workplaces where employees accrue PTO each month. The real living wage is not set by the government, and is higher than the national living and national minimum wage.

The accounting action only signifies that a salary payment is due. To do this, you must record a debit to the “wages payable” account for the same amount you paid the employee. Then you need to record a credit to the “cash” account for the same amount. An hourly employee, who is paid an hourly wage, will get paid per hour worked.

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