Accrued Salaries Journal Entry
In accounting, accrued salaries are the amount that the company owes to its employees for the services they have performed during the period but not have been paid for yet. Likewise, as the expense has already incurred, the company needs to properly make journal entry for accrued salaries at the end of the period.
The journal entry of accrued salaries will increase both the expense account and the liability account. Likewise, it will affect both the income statement and the balance sheet after adjusting entry.
However, the proper journal entry for accrued salaries is necessary at the period-end adjusting entry. This is so that total expenses during the period as well as the total liabilities at the reporting date are not understated.
Accrued salaries journal entry
The company can make accrued salaries journal entry by debiting salaries expense account and crediting salaries payable account at the period-end adjusting entry.
The above journal entry of accrued salaries is to recognize the cost that has already incurred with the services that employees have performed for the company during the period. This is important as the company needs to record the obligations that exist at the reporting date and to recognize the expenses that have occurred in the current accounting period.
Salaries paid journal entry
Later when the company makes the payment to the employees, it can make the journal entry to eliminate salary liabilities by debiting salaries payable account and crediting cash account.
The company makes this journal entry of salaries paid to eliminate the liabilities that it has recorded in the period-end adjusting entry. Likewise, there is no effect on the income statement in this journal entry as the company has already recorded the expense that has incurred together with the accrued salary in the previous period adjusting entry.
For example, the company ABC Ltd. has the policy to pay current month salaries to its employees on the 3rd day of the next month period. The amount of salary in December 2019 is $15,000 and the payment will be made on January 03, 2020.
In this case, in the December 31 adjusting entry, the company ABC needs to make journal entry for accrued salaries to recognize the salary expense that has already occurred as below.
Likewise, this journal entry is to recognize the liabilities that the company owes to its employees for the work that they have done in December 2019. If there is no recording of the above, total expenses and total liabilities will be understated by $15,000.
Later, the $15,000 amount of salaries payable will be eliminated when the company pays its employees on January 03, 2020.
Hence, on January 03, 2020, the company ABC will make the journal entry for salaries paid as below:
This journal entry is to eliminate the $15,000 of liabilities that the company ABC has recorded in the December 31 adjusting entry. In other words, it is to settle the salaries payable that the company owes its employees for work they have done in December 2019.