What Kind of Account Is Accrued Payroll?
Investors appreciate it when a company draws sharp distinctions with rivals, showcasing its ability to innovate by the day and propose products that customers want. To boost innovation and technological advance, the business must hire competent candidates, pay them competitively and properly track pay data, including accrued payroll and bonuses due.
The term "payroll' in accrued payroll refers to salary expense a business incurs. If you look into a financial lexicon, phrases such as "salaries expense," "compensation cost," "labor charge" and "payroll expense" are interchangeable. They all refer to money an organization doles out periodically to reward the physical and intellectual efforts of personnel, doing so in accordance with labor agreements and regulatory guidelines. Accrued payroll means cash a business hasn't paid employees at the reporting date because of a timing difference. For example, if the company's pay cycle falls on the 15th and 30th day of every month, it will accumulate -- or accrue -- payroll charges if it reports financial statements on the 25th day of the month.
To accrue payroll, a corporate bookkeeper debits the salaries expense account and credits the salaries payable -- or accrued payroll -- account. When the company pays employees, the bookkeeper credits the cash account and debits the salaries payable account to bring it back to zero. In financial terminology, debiting cash -- an asset account -- means increasing funds in operating vaults. Accrued payroll is a short-term debt because a company typically must settle compensation debts within 12 months -- a time frame that may too remote from an operational reality that usually calls for payments within a few days.
As a current liability -- the other term for a short-term debt -- accrued payroll is integral to a statement of financial position, also known as a balance sheet or report on financial condition. The cash account also flows into a corporate balance sheet, specifically in the "short-term assets" section. Salaries expense is part of the "selling, general and administrative charges" section of a statement of profit and loss, the data synopsis accountants often call an income statement or P&L.
To track and settle accrued payroll on time, a company uses technology. The tools of the trade run the gamut from enterprise resource planning software and content workflow programs to document management software and financial analysis applications. Other tools include Information retrieval or search software, mainframe computers, accounts receivable and payable management applications, and calendar and scheduling software.