Accrued payroll is payroll that is recorded on a company’s books but is not yet paid. This typically happens at the end of a month or year. The payroll is calculated up to the last day of the ending period and is recorded in the form of journal entries. Accrued payroll takes place for companies to remain consistent with the matching principle outlined by generally accepted accounting principles. This principle states that all revenues and expenses are recorded in the month in which they occur. When the end of a period comes around, the accrued payroll must be recorded properly to account for the expense happening in the correct period.
Calculate the amount of wages, salaries and taxes that need to be accrued. If Dec. 31 was a Monday, and the pay period began that day, there is one day's worth of wages that need to be accrued and accounted for. All wages including bonuses and commissions are recorded and accrued at the end of that day. If the amount of wages for the day is $1,000, this amount needs to be recorded by debiting the account Wages Expense for $1,000. By doing this, it places the expense in the correct period in which it occurred.
Determine the amount of payroll taxes for the one day of work. After the taxes are calculated, they are recorded on the books as liabilities. They are considered liabilities because they are not being paid now. The amount of payroll expense the employer is responsible for is listed as a debit to payroll expense which places the expense in the correct period in which it occurred.
Post the payroll expenses. Assume the payroll taxes add up to $300 and of that, $50 is the employer’s responsibility. The journal entry started above is completed by posting the remaining items. For this entry, a debit of $50 is made to Payroll Expense. The rest of the amounts are all credits to the following accounts: $100 to FICA Tax Payable, $100 to Federal Income Tax Payable, $25 to State Income Tax Payable, and $75 to 401(k) Payable. The remaining amount needed to balance out the journal entry is a credit to Payroll Payable for $750.
Pay the payroll when the date of payment comes. When it is time to actually do the payroll, the payroll for the remaining days of the pay period are calculated and checks are made out. All of the payable accounts used for the accrual are debited when this happens.