What are Wages Payable?: Meaning, Treatment, Journal Entry, and Many More

Are you managing your payroll and financial statements by yourself but don’t know “what are wages payable?” Why worry when we are here? 

Although the recording and treating of accrued salaries and wages is one of the easiest, business owners who manage the accounting of their small businesses sometimes forget about it. Its significance can be measured from the fact that it directly affects a business’s accounts payable turnover ratio.

Thus, we have brought this guide to help you understand the meaning, treatment, and journal entries, along with similarities with salaries payable for easy recognition of accounting processes. 

What are Wages Payable?

Wages payable are the accrued payoff earned but not paid to the employees. This liability is cleared during the reporting period when the compensation costs are settled by making payments to the employees. In accordance with the matching principle, the wages payable accounting is used to compare the amount of expenses with generated revenue. 

A company that only produces financial statements for internal reporting might not record minor accrued wages in their interim reporting period. Now, this might bring the question, “Are wages payable current liabilities?” to your mind. Read the next section to bring light to this concern.

Are Wages Payable Considered Current Liabilities?

As we all know, the nonpayment of payoffs to employees represents the future obligation and outflow of cash. Therefore, the amount of wages payable is recorded on the liabilities side of the balance sheet. 

Along with this, business owners are liable to settle this amount shortly, say within 12 months. Thus, it is recorded as a current liability under the liabilities section of the balance sheet. 

Remember that it is not always the case. If the unpaid wages are payable after 12 months, the amount will be considered a non-current liability. It will be recorded as other long-term liabilities in non-current liabilities. 

Are Wages Payable and Salaries Payable Treated Differently?

The answer is no. The accounting treatment of both components is exactly the same. Both are recorded in the current liabilities on the balance sheet of a company. Even the adjustment entries are the same, where the expenses are debited, and the payable amount is credited. 

Salary Expenses Account          To Salary Payable Account

XX

XX

Wages Expenses Account         To Wages Payable Account

XX

XX

Don’t confuse salary expenses or wage expenses with payables, as these are listed on the company’s income statement. 

Journal Entries for Accrued Wages or Wages Payable

There are only 2 adjustment entries for the complete settlement of accrued wages or wages payable. 

• When the accrued wages are settled against the wage expenses.

  Wages Expenses Account         To Wages Payable Account

  XX

  XX

• When the payable amount of wages is repaid.

  Wages Payable Account     To Cash Account

  XX

  XX

• When a partial payment is made to employees. 

  Wage Expenses Account  (Total Liability)     To Wages Payable Account (Remaining liability after payment)     To Cash Account (Payment made against liability)

  XX

  XX XX

Here, 

• The amount of the wage expenses account shows the total liability incurred by the company.
• Cash accounts indicate the payment made against the liability.
• The wages payable account shows the amount of payment remaining to be made.

Journal Entries for Salaries Payable

Similar to wages, salaries are also expenses. Thus, it will be debited in the journal entries against salaries payable, a liability to the company.

• When the salaries payable are settled against the wage expenses.

  Salary Expenses Account         To Salary Payable Account

  XX

  XX

• When the payable amount of salary is repaid.

  Salary Payable Account     To Cash Account

  XX

  XX

• When a partial payment is made to employees. 

  Salary Expenses Account  (Total Liability)     To Salary Payable Account (Remaining liability after payment)     To Cash Account (Payment made against liability)

  XX

  XX XX

Here, 

• The amount of the salary expenses account shows the total liability incurred by the company.
• Cash accounts indicate the payment made against the liability.
• The salaries payable account shows the amount of payment remaining to be made.

Example for Understanding Wages Payable and Salaries Payable

1. Robert Co. Ltd. pays its employees wages every Thursday of the week. For the first week of March, they decided to collectively pay on the second Thursday of the week. The per-day wage of each of the employees is $120, and there are 5 employees in the company. 

Wages Expenses Account     To Wages Payable Account   (Being the amount of the due wages accounted in the wages payable account)

6,000

6,000

Wages Payable Account     To Cash Account (being the payment of accrued wages made)

6,000

6,000

2. Den Deck Builders pays weekly wages to their 10 workers on Friday. For the last week of the year, which ended on Thursday, the payments were made on January 1 of the following year. $100 is the per-day pay of each worker. 

Wages Expenses Account     To Wages Payable Account   (Being the amount of the due wages accounted in the wages payable account)

5,000

5,000

Wages Payable Account     To Cash Account (being the payment of accrued wages made)

5,000

5,000

Employees who face issues with any kind of delay in their payable wages and salary must opt for payday loans. 

Bottom Line

Accrued salaries and wages are some of the first items entered into the final accounts or financial statements of a company, as these are usually payable within 12 months and treated as current liabilities. A business that delays the payment of its employees needs to maintain its accounts with the aforementioned journal entries to keep a balance in its financial accounts.