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The salaries payable account is a current liability account that is used to recognize any unpaid wages to employees that are due to be paid. Awareness of the characteristics of this vital account can assist business people and accounting gurus in appropriate documentation and presentation of salary costs. In the following article let us look at the important aspects that you should understand about the salaries payable accounts.

Definition of Salaries Payable

SALARIES PAYABLE This is a liability account that is found in the balance sheet of a company. This is employed to record all wages that are payable to the employees and which have not been provided by the company up to the date of the balance sheet. This is a personal account and a liability account since it represents an obligation that the company has towards its employees.

In particular, the wages referred to in this account are for the services that employees have rendered and which would be reflected in salaries payable. Thus, if the current workweek in which the hours were worked have not been paid yet, such unpaid salaries would be transferred to the salaries payable account under the period-end.

The reason for the Salaries Payable Account is that it allows for the tracking of employees’ wages and ensures that the company pays the correct amount to employees.

It is widely practiced because expenses and liabilities should be recorded in the period in which they are incurred. That helps to adhere to the matching concept – according to which revenue and expenses should be reported at the same period in the income statement. For wages earned, if these are not accumulated, the expenses and revenues do not balance as expected.

By using the salaries payable account, expenses such as wages can be recorded when the work is done, rather than when payment is made. It does not matter that the actual physical form of the payment has not been made in cash. This rules out scenarios where the financial statements convey a different picture of the company’s net income than what was the case for a particular period.

How Transactions Show Up

When the employees are paid their wages at the end of the month and the amount relating to the Salaries Payable Account is paid out, then this account will be debited. This is in essence a confirmation that the liability has been discharged. At the same time, the cash account is debited to reflect that cash has been paid out from the business. This reduces the salaries payable account balance back to zero in the absence of wages that would have accumulated for the next payroll period.

Every time, when accrued wages are closed to salaries payable in the balance sheet at end of the period, the following entries take place: no cash is affected; salaries expense is debited, thus increasing the expenses on the income statement. The credit side in that transaction goes to salaries payable which in turn raises the liability.

Key Takeaways

- It is a current account that shows the organization’s liability arising from salaries not yet paid to employees who have provided labor for the organization already.

- Regarding the matching principle in accounting, expenses are recorded in the period they were incurred irrespective of the actual cash payment made, although there are timing differences.

- When the wages are issued out, credits decrease the liability account balance. Concurrent debits exist in the cash account for the real flow of money.

To have proper records of salaries payable it is essential to ensure that we have employees and wages within the business operations. That is why it is crucial to understand the nature of the account to accurately code transactions.

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