What is Wages Payable? Definition Meaning Example

Salaries expense is normally recorded in a company’s income statement as part of the cost of goods sold or indirect cost. A salaries payable entry will tell you exactly how much money you owe to your employees for services performed. Keeping accurate payroll records is important because through your payroll, you are paying bills that, if not paid properly, can cause major problems for your company. In the payroll entry, you record salaries payable, federal taxes payable, state taxes payable, insurance premiums and other deductions specific to your organization. The wages payable account is usually used at the end of a period like a year-end.

Add all the debits and enter the total on the bottom line in the debit column. Add all the credits and enter the total on the bottom line in the credit column. The payroll entry is correct when the debit total equals the credit total. Explain how to create a multistep income statement and balance sheet.

Wage Expense: The Cost to Pay Hourly Employees

Consequently, it may confuse some into thinking salaries payable is an expense. However, the subsequent transactions qualify salaries payable as a liability. Another difference between salaries expense and salaries payable comes after some time. When a company records salaries expense, the payable amount will also match. In some cases, if a company has disbursed advance amounts, their values won’t be the same. After a while, when a company pays some of its employees, the salaries payable amount will change.

• However, the subsequent transactions qualify salaries payable as a liability.
• This means it will be included in the cost of goods sold and is recorded either when the goods are declared obsolete or get sold.
• But at the beginning of the next accounting period, you will credit the wages expense account and debit the accrued wages account.
• Irrespective of how salaries are paid, they are all recorded as salaries expense.

Discuss how a contribution income statement could be used to improve planning in a company. But, sometimes this amount is not required to pay based on the company and staff’s different reasons. The content provided on accountingsuperpowers.com and accompanying courses is intended for educational and informational purposes only to help business owners understand general accounting issues. The content is not intended as advice for a specific accounting situation or as a substitute for professional advice from a licensed CPA.

Internal Control Procedures for the Receipt of Cash

Overall, salaries payable refers to an obligation to pay employees at a future date. This difference in the timing creates an obligation, which requires what are salaries payable companies to record salaries payable. Subsequently, when a company compensates its employees, it can remove the salaries payable balance.