What is Accrued Wages?

Accrued wages refers to the amount of liability remaining at the end of a reporting period for wages that have been earned by hourly employees but not yet paid to them. Accrued wages are recorded in order to recognize the entire wage expense that a business has incurred during a reporting period, not just the amount actually paid. If the amount of accrued wages is immaterial, then the accountant may skip making this entry at the end of a reporting period, in order to reduce the amount of time spent on the closing process.

Accounting for Accrued Wages

The accrued wages entry is a debit to the wages expense account, and a credit to the accrued wages account. The entry should be reversed at the beginning of the following reporting period. This reversal can be accomplished by setting up the initial entry to automatically reverse at the start of the next reporting period.

Presentation of Accrued Wages

Accrued wages is always considered a current liability, and so is included within the current liabilities section of the employer’s balance sheet. If the balance sheet is presented with aggregated line items, then the accrued wages liability will probably be included in the accrued expenses line item. A sample presentation of the accrued expenses line item appears in the following balance sheet exhibit.

Example of Accrued Wages

As an example, Mr. Smith is paid $20 per hour. He is paid through the 25th day of the month, and has worked an additional 32 hours during the 26th through 30th days of the month. This unpaid amount is $640, which the employer should record as accrued wages as of month-end. This accrual may be accompanied by an additional entry to accrue for any related payroll taxes.