What is Wages payable?
Wages payable refers to an organization's liability for wages earned but not yet paid to employees.
To understand ‘Wages Payable’, we must first understand ‘Wage Expenses’.
Wage expenses are the costs incurred by businesses in order to pay hourly employees. This line item may include payroll taxes and employee benefits. Wage expenses can be recorded as a line item in the income statement’s expense section. Under the accrual method of accounting, Wage expenses are recorded when the work was completed. While under the cash method of accounting, wage expenses are recorded when the payments are made.
Wages payable are the wages that a company’s employees have earned but have yet to be paid. Under the accrual method of accounting, this amount is most likely recorded with an adjusting entry at the end of the accounting period, so that the amount appears on the company’s balance sheet as a current liability. Typically, the adjusting entry debits Wages Expense and credits Wages Payable.
The purpose of accrued wages recognition is to record the incurred but unpaid wage expense in a given reporting period.
How to record Wages payable?
To reflect the discrepancy on the general ledger in accordance with GAAP accrual accounting reporting standards, accrued wages are treated as a debit to the wages account, with an offsetting credit to the accrued wages account.
Debit Entry for Wage Expense Account
Credit Entry for Wages Payable Account
Once the employee has been paid in full, the entries will be reversed by the start of the next reporting period.
Depending on the specific circumstances (and the timing of the accrued payroll expense), an additional entry may be required to record payroll tax adjustments.