Accrued payroll journal entry refers to the wages and salaries that employees have earned but have not yet been paid as of the end of an accounting period. Since these amounts represent an obligation for the company, they are recorded as a liability on the balance sheet until they are paid.
Below are examples of journal entries related to accrued payroll.
1. Recording Accrued Payroll
At the end of an accounting period, the company needs to record the payroll that has been earned by employees but has not yet been paid.
Example: Accruing Payroll
Assume that as of December 31, 2024, your employees have earned $15,000 in wages that will be paid on January 5, 2025.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Salaries and Wages Expense | 15,000 | |
| 12-31-2024 | To Salaries and Wages Payable | 15,000 |
Explanation:
- Salaries and Wages Expense will debited to recognize the expense associated with the payroll earned by employees during the period.
- Salaries and Wages Payable will credited to recognize the liability for the payroll that will be paid in the future.
2. Paying the Accrued Payroll
When the company actually pays the wages that were accrued, the liability is reduced, and Bank is credited.
Example: Paying Accrued Payroll
On January 5, 2025, the company pays the $15,000 in wages that were accrued on December 31, 2024.
Journal Entry on January 5, 2025:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-05-2025 | Salaries and Wages Payable | 15,000 | |
| 01-05-2025 | To Bank | 15,000 |
Explanation:
- Salaries and Wages Payable will debited to eliminate the liability that was recorded at the end of the previous period.
- Bank will credited to reflect the outflow of cash to pay the employees.
3. Including Payroll Taxes with Accrued Payroll
In addition to wages, companies must also account for payroll taxes such as Social Security, Medicare, and unemployment taxes that are associated with the accrued wages.
Example: Accruing Payroll with Payroll Taxes
Assume that the accrued wages of $15,000 include employee taxes amounting to $1,150.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Salaries and Wages Expense | 15,000 | |
| 12-31-2024 | Payroll Tax Expense | 1,150 | |
| 12-31-2024 | To Salaries and Wages Payable | 15,000 | |
| 12-31-2024 | To Payroll Taxes Payable | 1,150 |
Explanation:
- Salaries and Wages Expense will debited for the gross wages earned.
- Payroll Tax Expense will debited for the employer’s share of taxes.
- Salaries and Wages Payable will credited to record the liability for wages owed.
- Payroll Taxes Payable will credited to record the liability for payroll taxes owed.
4. Paying the Accrued Payroll and Payroll Taxes
When the payroll and associated taxes are paid, the liabilities are reduced.
Journal Entry on January 5, 2025:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-05-2025 | Salaries and Wages Payable | 15,000 | |
| 01-05-2025 | Payroll Taxes Payable | 1,150 | |
| 01-05-2025 | To Bank | 16,150 |
Explanation:
- Salaries and Wages Payable will debited to remove the liability for wages.
- Payroll Taxes Payable will debited to remove the liability for payroll taxes.
- Bank will credited to reflect the payment of wages and payroll taxes.
5. Adjusting for Overtime and Bonuses
If employees earn overtime or bonuses that are not paid immediately, these amounts should also be accrued.
Example: Accruing Overtime Pay
Assume that $2,000 of the $15,000 in accrued wages is for overtime worked in December 2024.
Journal Entry on December 31, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 12-31-2024 | Salaries and Wages Expense | 13,000 | |
| 12-31-2024 | Overtime Expense | 2,000 | |
| 12-31-2024 | To Salaries and Wages Payable | 15,000 |
Explanation:
- Salaries and Wages Expense will debited for regular wages.
- Overtime Expense will debited to account for the overtime portion.
- Salaries and Wages Payable will credited to record the total liability.
These entries ensure that accrued payroll expenses and related liabilities are accurately reflected in the financial statements, providing a clear picture of the company’s financial obligations at the end of each accounting period.