Payroll entries are the result of recording employee salaries and wages into the general ledger. Accountants often record these entries after receiving payroll figures from the payroll department. Salaries payable entries are the result of recognizing payroll liabilities under accrual accounting, indicating that a company must pay this money in the future.
Salaries typically represent a fixed expense. Employees receive the same amount of pay each time they receive a paycheck. While a company may quote the monthly salary to employees, the accounting department must break down the figure based on payroll periods. Common payroll periods include every week, every two weeks or semi-monthly. The payables portion occurs when the pay date occurs after month end.
Two journal entries are necessary to record salaries payable. First, a company will record a debit into the salaries expense for the gross amount paid to employees. The credits for the entry go into the payables accounts, which include payroll taxes payable and net payroll payable, with the aggregate credits equaling the debit amount. The second entry goes into the ledger once the company pays employees. The entry debits net payroll payable and credits cash; a similar entry is necessary for paying payroll taxes.
Companies report salary expense on the income statement. The amount reported on this financial statement represents all salaries incurred for the period. Accountants may separate salaries paid on the income statement by department or employee groups. For example, selling and administrative salaries are different than production salaries. Salaries payable goes on the balance sheet, under the current liabilities section. Separation may also be necessary for the payables account.
Using direct deposit through a bank allows a company to track wages and salaries through bank reconciliations. For example, many companies use an imprest bank account for payroll checks or deposits. This means the cash in the account will only fund the payroll for a particular period. Accountants can use the bank reconciliation to review all wages and salaries entries and ensure that the information is correct and matches the checks paid to employees.
- "Accounting"; Charles T. Horngren, et al.; 2007