What is a Wage Accrual?

A wage accrual is a journal entry to recognize the unpaid portion of wages at the end of a reporting period. A sample wage accrual entry is shown below, where you typically clump all payroll taxes into a single expense account and offsetting liability account. After recording this entry, reverse it at the beginning of the following accounting period, and then record the actual payroll expense whenever it occurs.

Example of a Wage Accrual

A sample journal entry follows:

 
Debit
Credit

Direct labor expense
xxx
 
Salaries expense [by department]
xxx
 
     Accrued   salaries and wages
 
xxx

     Accrued payroll taxes
 
xxx

The information for the wage accrual entry is most easily derived from a spreadsheet that itemizes all employees to whom the calculation applies, the amount of unpaid time, and the standard pay rate for each person. It is not necessary to also calculate the cost of overtime hours earned during an accrual period if the amount of such hours is relatively small.

Wage Accrual Best Practices

Companies with predominantly salaried staffs frequently avoid making the accrued wages entry, on the grounds that the wages due to a small number of hourly personnel at the end of an accounting period have a minimal impact on reported financial results. Another best practice is to set up the wage accrual journal entry within a standardized journal entry template, so that you can consistently use the same account numbers in each reporting period; otherwise, there is a risk that you will use different accounts in different periods.