Definition of Accrued Payroll
Accrued payroll includes wages, salaries, commissions, bonuses, and other payroll related expenses that have been earned by a company’s employees, but have not yet been paid or recorded in the company’s general ledger accounts.
Example of Accrued Payroll
Let’s assume that a retailer’s hourly-paid employees are paid each Friday for the hours they worked during the previous week. Let’s also assume that as of December 31, the hours worked from December 27 through December 31 will be part of the payroll that will be processed in early January and paid to the employees on Friday, January 8. The amount of the wages for the five days of December 27 through December 31 are calculated to be $5,000. In addition, the retailer incurred payroll taxes and fringe benefits amounting to $1,000. Therefore, the total amount of accrued payroll is $6,000.
Under the accrual basis of accounting, the retailer must report the $6,500 of accrued payroll as:
- An expense on its income statement for the period ended December 31
- Current liability on its balance sheet as of December 31
The retailer will accomplish this by preparing an accrual adjusting entry dated as of December 31.
