Is Salaries Payable A Permanent Or Temporary Account?

Numerous entrepreneurs with small businesses are always in doubt when it comes to the records of salaries and wages of their employees. Other questions often posed include whether the salaries payable account is permanent or temporary. In this blog post, the ‘what’ and the ‘how’ will be presented simply and concisely to avoid any confusion.

What is Salaries Payable?

Payable salaries is another account that falls under the category of liabilities and it is used for recording salaries to be paid to the employees regarding their Accounting Services rendered. They depict wages and salaries that employees are owed by firms but have been unfunded up to the date when the balance sheet was prepared.

In the case of wages and salaries, each pay period, quantities are accumulated in the salaries payable account by employees’ time cards or other evidence of the amounts earned. On the payday, the balance in the payroll account is cleared when payment transactions are processed through the bank, and the amount is paid to the employees.

Thus, in summary, salaries payable refers to the total of employees’ compensation that is yet to be paid since it reflects the ongoing balance of payable salaries that are expected to be paid in the future.

Whether Salaries Payable Is Permanent Or Temporary

As for the account that has to be mentioned, salaries payable is a temporary account as well. Temporary accounts are those accounts in the income statement that are closed off at regular intervals, at the end of every financial year.

Temporary accounts are not accounts such as cash or Accounts Receivable where the balances are transferred for many years. Rather they are written at first of each accounting period in a clean state or blank slate.

The key test of whether an account is temporary or permanent is:

- Temporary accounts: Beginning balance at every fiscal year zero or captured new expenses, revenues, etc.

- Permanent accounts: Closing balances that are carried forward to the next year and indefinitely identified (examples: assets, liabilities, equity).

Temporary accounts are as follows: The two main ones include the expenses and the revenues accounts. Well, if you reflect upon this logically, salaries payable are just like any other expense account. To be specific, it is the payment for employee’s services that they have rendered through their labor.

At the end of every period, the related outstanding balance shall either be settled shortly after the closing, or the year-end adjusting entry will bring the balance forward. In either case, the prior year amount for salaries payable does not roll forward and is zero.

Why the Account Needs to be Categorized Correctly

One is inclined to ask whether it is important for the figure salaries payable to be viewed as temporary or permanent. Since this has a bearing on the closing process at the year-end.

Since salaries payable is a temporary account it needs to be clear to zero to start preparing for the new accounting year. The balance would either be paid to the suppliers, vendors, staff, or others in cash or merely be taken to the credit side of the adjusted account and transferred to the next year’s ledger.

If the approaches were incorrectly implemented, you may end up treating salaries payable as permanent and have the wrong balance to carry into future years on the balance sheet. This might need correction and alteration to rectify these unintended typographical errors at some point in time.

This paper examines the Best Practices for Recording Salaries Payable.

As a result of a proper understanding of its function as an expense, salaries payable should be classified as a temporary account that is carried to zero at the end of every financial year.