Accrued Salaries

Accrued salaries are salaries which has been incurred but not yet recorded in the accounting ledgers at the end of the accounting period. This issue arises in a business as the salaries are often paid to a date which does not necessarily coincide with the accounting period end date.

Suppose for example a business pays monthly salaries of 55,000 on the 28th of each month. Assuming the accounting period ends on the 30th of the month, there will be two days in which work has been carried out by the employees (29th and 30th) which the payment on the 28th of the month did not take into account.

In order to correct this situation an accrued salaries journal entry is required and the amount is calculated as follows:

Monthly salaries = 55,000
Unpaid days = 2
Accrued salaries = Monthly salaries x 12 x Unpaid days / 365
Accrued salaries = 55,000 x 12 x 2 / 365
Accrued salaries = 3,616

Accrued Salaries Journal Entry

At the end of the month the business needs to record the unpaid salaries for that period with the accrued salaries journal entry is as follows:

Accrued Salaries Journal Entry
Account Debit Credit
Salaries 3,616
Accrued salaries 3,616
Total 3,616 3,616

The Accounting Equation for Accrued Salaries

The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.

For this accrued salaries transaction the accounting equation is shown in the following table.

Accrued Salaries – Accounting Equation
Assets = Liabilities + Owners Equity
None = Accrued salaries + Salaries expense
0 = 3,616 + -3,616

In this case the balance sheet liabilities (accrued salaries) have been increased by 3,616, and the income statement has a salaries expense of 3,616. The expense reduces the net income, retained earnings, and therefore owners equity in the business.

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Accrued Salaries November 6th, 2016Team

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