Accrued wages: worked, not yet paid

If the period ends before payday, the wages earned so far belong to this period as an expense, and are a liability until the payday that settles them.

Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.

What it is for

The month ends on a Wednesday and payday is Friday. Three days of the week's wages were earned in this month, and if nothing is recorded until Friday, this month's profit is overstated and next month's is understated by exactly that amount.

How to think about it

Find the daily wage. Count the days worked since the last payday up to the period end. Multiply. Debit wages expense, credit wages payable. On payday, the payable is cleared and only the remaining days are that period's expense.

Worked example

Weekly wages 5,000 for 5 days → 1,000 per day

The rate the accrual is built on.

3 days worked before month-end: 3 × 1,000 = 3,000

Earned this month, unpaid at month-end.

Month-end: Dr Wages expense 3,000 / Cr Wages payable 3,000

This month's cost, and the debt to the staff.

Payday: Dr Wages payable 3,000, Dr Wages expense 2,000 / Cr Cash 5,000

The 5,000 leaves. Three days settle the liability; two days are next month's expense.

Your turn

Weekly wages are 6,000 for five days, and two days are unpaid at month-end. Write the accrual line with the daily wage filled in.

Accrued wages = 2 ×  = 2,400

The trap

Expensing the whole 5,000 on payday in the new month. Three days of it were last month's cost, and both months are now wrong by 3,000 in opposite directions.

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