Companies deal with a variety of financial concerns throughout their business. They consider financing needs to expand the business. They pay for materials to convert into finished products. They collect payments from customers. In addition, these companies need to compensate their staff. Some employees receive salaried compensation, while others are paid based on their hourly wage rates. Salary payable is an accounting term that describes the company's liability for employee pay.
What Is A Salary?
A salaried employee receives a predetermined amount of pay for each paycheck. When the company first hires the employee, it offers him an annual salary. The company calculates the gross pay for each paycheck by dividing the annual salary by the number of pay periods in the year. The employee receives the same amount of pay regardless of the number of hours worked. He receives no overtime pay and is not docked for lost time.
Salaried employees fill many roles within companies. Some salaried employees work in the office, in human resources or accounting. Other salaried employees work in the plant overseeing plant operations, such as a plant manager. Salaried employees perform their work based on their assigned responsibilities rather than working a specific number of hours.
The company records a liability after it determines the gross payroll but before it pays the employees. This liability is called salary payable. Salary payable represents the money owed to the employees. The salary paid to the employee represents an expense for the company. The company uses the employee to provide a product or service to the customer. The company records the gross pay as the salary expense. When the company records the payroll for the period, it increases the salary expense and the salary payable by the gross amount. When the company pays the employees, it decreases salary payable and decreases cash.
The company reports salary expense and salary payable on its period end financial statements. The income statement uses revenues and expenses to calculate net income. Salary expense shows up on the income statement and reduces the company’s net income. The balance sheet lists the assets, liabilities and equity accounts of the company. Salary payable shows up in the liabilities section of the balance sheet.