Generally accepted accounting principles, often referred to as GAAP, are standards that most business accountants adhere to. By using the same principles, all businesses can ensure that their accounts are easy for auditors to follow. GAAP requires salary to be listed as an expense, but since businesses do not pay employees every day, accountants must adjust the books to account for salaries that have not yet been paid at the end of an accounting period.

Accrued Expense

Salaries are considered accrued expenses under the GAAP. Salaries accumulate throughout the pay period until the employer pays the employee. Thus, accountants list salaries as an accrued expense and list salaries that have not yet been paid at the time of reporting as "salaries payable," so that the ledgers balance and salaries are reported properly even if they have not yet been paid.

End of Year

If employees earn salaries at the end of one year but don't get paid until the following year, accountants must take the salary into account in both the December and January accounting ledgers. In December, the accountant lists the total amount of salary earned as an expense and then carries it over to January as salary payable. In January, the accountant lists salary earned in January as an expense and then lists salary payable from December underneath it to make it clear where each part of the salary owed comes from. For example, if employees earn $5,000 in December and then $8,000 during the first week of January, in December the $5,000 is listed as salary payable and in January the $8,000 is listed as salary expense, while the $5,000 is listed as salary payable for a total salary expense of $13,000.


Salary must be recorded as an accrued expense because most companies do not pay employees on a daily basis. Thus, each day employees work, they accumulate salary that must be paid to them on payday. The accumulated salary thus becomes a liability item until the company pays it off. If a company did pay employees on a daily basis, salary would be listed as a direct expense rather than as an accrued expense.

Summary Requirement

GAAP requires the accountant to list a summary of all salaries as one line item rather than listing each individual salary as an individual liability. This makes accounting clearer. For example, accountants list a total liability of $8,000 if they owe all employees $8,000 rather than listing the exact value of each paycheck the company owes to various employees.