The matching principle states that a company must match expenses with revenues from the same period. In the case of accrued salaries and wages, a company must recognize an expense that the company has not paid. Every day a company accrues a liability for salaries and wages until salaries and wages are actually issued to employees on payday, as explained by the Net MBA website. When a company ends its accounting period in the middle of a pay period, the company must make an adjusting entry to show the unpaid salary and wages obligation.
Calculate the amount of wages and salaries accrued. Multiply the number of days by the daily wages and salaries total. For instance, a company that must recognize wages and salaries for five days at $1,500 a day for all employees has wages and salaries accrued of $7,500.
Record the date of the wages and salaries accrued in the general journal. Write the day and month of the transaction.
Debit wages and salaries expense for the applicable amount. Using the example from Step 1, a company will debit wages and salaries expense for $7,500. This increases the company’s wages and salaries expense, which decreases total revenue. The wages and salaries expense account appears on a company’s income statement.
Credit wages and salaries payable for the same amount as the debit in Step 3, as credits must equal debits. If the company debits wages and salaries expense for $7,500, it must credit wages and salaries payable for $7,500. Crediting wages and salaries payable increases the company’s obligation to pay salaries and wages to employees.
Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.