Wages Payable Definition

Wages expense is the account that the bookkeeper or accountant uses to record the labor costs of the company. https://business-accounting.net/ You may also refer to it as salary expense or payroll expense, depending on the organization’s preference.

is wages expense a liability

Because the company actually incurred 12 months’ worth of salary expenses, an adjusting journal entry is recorded at the end of the accounting period for the last month’s expense. The adjusting entry will be dated December 31 and will have a debit to the salary expenses account on the income statement and a credit to the salaries payable account on the balance sheet. For example, a company pays its hourly employees once a month, on the last business day of the month.

Expenses

Salary payable is a current liability account that contains all the balance or unpaid amount of wages at the end of the accounting period. The amount of salary payable is reported in the balance sheet at the end of the month or year and it is not reported retained earnings in the income statement. Since they are typically paid immediately after their time sheets are submitted, they aren’t actually owed anything. In other words, they aren’t actually due to be paid until the end of the pay period for their time sheet.

is wages expense a liability

If the company doesn’t pay them on the scheduled pay date, then that would become an accounts payable liability, otherwise, no liability has been incurred. If you think about it, you have no idea how much hourly workers are owed until the time sheet has been submitted. So even though the company legally owes them for the work they did, it’s not an accrued expense until the time sheet is submitted . For cash flow purposes, a company is wages expense a liability may project the cash needs based on projected payroll expenses, but this isn’t part of the books. An accrued expense is an accounting term that refers to an expense that is recognized on the books before it has been paid; the expense is recorded in the accounting period in which it is incurred. An accrued expense is only an estimate, and will likely differ from the supplier’s invoice that will arrive at a later date.

Presentation Of Wages Payable

It is sometime recording under cost of goods sold, cost of services or operating expenses depending in how the staff are involved in the operation. Salary payable and accrued salaries expenses are the balance sheet account, and they are recording income summary under the current liabilities sections. This account is decreasing when the company make payable to its staff. To account for wages expense, the bookkeeper or accountant debits the account for the amount of labor costs during the relevant period.

The company controller records this amount as a debit to wages expense and a credit to the wages payable liability account. The entry is set up as a reversing entry, so the accounting software automatically reverses it at the beginning of the following month. The net effect of the entry is to recognize the unpaid wages as an expense in the same period in which employees earned the ledger account wages. Companies report payroll expense on their income statements. This financial report lists all capital expenditures for the current accounting period in relation to the income earned during the same time. This account indicates the company owes employees money that remains unpaid. Companies will remove this liability in the subsequent month when it issues payroll checks.

Salaries And Wages As Expenses On Income Statement

Those businesses that use the cash basis of accounting record this expense as it is paid to the employees. Companies that use the accrual method of accounting record wages expense as the cost is is wages expense a liability incurred, which is not necessarily when the company pays the employee. A debit to this account, under the accrual basis, requires a credit to the wages payable account for any amounts not paid.

  • You may also refer to it as salary expense or payroll expense, depending on the organization’s preference.
  • Wages expense is the account that the bookkeeper or accountant uses to record the labor costs of the company.
  • Because the company actually incurred 12 months’ worth of salary expenses, an adjusting journal entry is recorded at the end of the accounting period for the last month’s expense.
  • Those businesses that use the cash basis of accounting record this expense as it is paid to the employees.

Comments are closed.