What are Accrued Salaries?

Accrued salaries refers to the amount of liability remaining at the end of a reporting period for salaries that have been earned by employees but not yet paid to them. This information is used to determine the residual compensation liability of a business as of a specific point in time. This concept is only used in businesses that employ the accrual basis of accounting, under which expenses are recognized as they are incurred. The accrued salaries concept is not used under the cash basis of accounting.

Accounting for Accrued Salaries

The accrued salaries entry is a debit to the compensation (or salaries) expense account, and a credit to the accrued wages (or salaries) account. The accrued wages account is a liability account, and so appears in the balance sheet. If the amount is payable within one year, then this line item is classified as a current liability on the balance sheet.

Example of Accrued Salaries

Mr. Jones is paid a salary of $10,000 per month, which is paid on the 25th of the month. As of the end of the month, the employer of Mr. Jones owes him five days of pay, which is 16.6% of his full-month salary. Therefore, at month-end, the employer accrues a salary expense of $1,666.67 to reflect this unpaid portion of his salary. The entry is a reversing entry, which means that it reverses at the beginning of the next month, to be replaced later in the following month by the actual payroll payment to Mr. Jones. This accrual may be accompanied by an additional entry to accrue for any related payroll taxes.