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What is Salaries Payable?

Salaries Payable

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Salaries Payable

“Salaries Payable” is a liability account in accounting that represents the amounts owed to employees for services rendered but not yet paid. It indicates the obligations a company has to its employees that will be settled in the future. When a company owes its employees their wages or salaries at the end of a period but will pay them in a subsequent period, it records this liability in the Salaries Payable account.

Key points about Salaries Payable:

Example of Salaries Payable

Let’s illustrate the concept of “Salaries Payable” with a hypothetical scenario involving a bookstore named “Readers’ Haven.”

Readers’ Haven has 3 employees:

  • Alice, a store manager earning $1,000 per week.
  • Bob, a cashier earning $500 per week.
  • Charlie, a stock clerk earning $500 per week.

The employees are paid bi-weekly. Their workweek ends on Sundays, but they get paid for those two weeks on the following Friday.

For the last week of March, all three employees worked their regular hours. As March ends on a Thursday, the bookstore owes one week of wages to its employees, which will be paid the next Friday in April.

Calculations:

  • Alice: $1,000
  • Bob: $500
  • Charlie: $500

Total Salaries for the last week of March: $1,000 + $500 + $500 = $2,000

Journal Entries:

On March 31st, to acknowledge the amount owed to the employees for their work in the last week of March:

  • March 31 (recognizing the accrued salary):
    Debit (Dr.) Salaries Expense: $2,000
    Credit (Cr.) Salaries Payable: $2,000

This entry shows that Readers’ Haven has recognized an expense of $2,000 for the salaries of its employees for the last week of March. The credit to Salaries Payable indicates that this amount is owed to the employees but hasn’t been paid yet.

When Readers’ Haven pays its employees on the following Friday in April:

  • April 8 (settling the liability):
    Debit (Dr.) Salaries Payable: $2,000
    Credit (Cr.) Cash: $2,000

Now, the Salaries Payable account is reduced by the amount paid, and the bookstore’s cash balance decreases by the same amount.

In this example, “Salaries Payable” serves as a temporary holding account that acknowledges the bookstore’s obligation to its employees. Once the obligation is settled, the amount in the “Salaries Payable” account returns to zero until the next time salaries accrue without being immediately paid.

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