How to Make Accounting Entries of Salary

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Businesses that hire employees must constantly post accounting entries to their books to reflect the accrual of salaries and their future payments. This is an ongoing process for accountants since each day that employees go to work, the company increases its liabilities. However, most companies don’t make journal entries for employee wages on a daily basis; rather, the entries are made at fixed intervals that generally coincide with each payroll period.

Things You'll Need

  • List of employee work schedules
  • Record of employee salaries and hourly wages

Choose the frequency at which to make journal entries for salaries. It is impractical to record the accrual of employee salaries on a daily basis. Instead, select fixed intervals for which you will make the journal entries, such as the last day of each payroll period.

Make a credit entry to salaries payable. When your employees come to work each day, your company is accruing a liability to pay them for a day’s work. On the last day of the payroll period or other point in time you choose, you must post a credit entry to a salaries payable account to reflect the liability of the company. The amount of the entry is equal to the total wages that employees earn during the period.

Post a debit entry to the salary expense account. At the time of posting the credit entry to the payables account, you must also post a corresponding debit entry to the salary expense account. The expense account increases at the time the business incurs additional salary liabilities rather than when you send employees their paychecks. At the end of the year, the total in the salary expense account is reported on the company’s annual income statement.

Credit the cash account when salary payments are made to employees. Since most companies make payment of employee salaries in arrears, you should record salary payments for the prior payroll cycle at the time of recording the new liabilities for the current cycle. To reflect the decrease in the company’s cash balance, post a credit entry to the cash account for the total of all salary payments.

Reduce the salaries payable account for the cash payment. When making the cash payment of salaries, it’s necessary to simultaneously reduce the salaries payable account by the same amount since the company is paying off its liability to employees. Record a debit entry to the salaries payable account for the same amount you credit the cash account.

Tips & Warnings

  • It is important that you have open communication with your company’s human resources department so that you can keep your employee roster current. If you don’t make adjustments for employees who leave the company, as well as for those the company recently hires, your journal entries for salaries will be inaccurate.
  • For employees who receive an hourly wage rather than a fixed salary, you should implement a process to verify the accuracy of a sample of the time sheets each period. You can easily accomplish this by collaborating with company supervisors who can confirm the hours their employees work.

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