Accrued Wages
Employee compensation that has been earned during an accounting period but has not yet been paid as of the period-end date.
What is Accrued Wages?
Accrued wages (also called accrued salaries or accrued payroll) represent wages and salaries owed to employees for work performed during the current accounting period that will not be paid until the following period, typically because the pay date falls after the balance sheet date. Under the accrual basis of accounting and the matching principle, these expenses must be recognized in the period they are incurred — not when cash is paid. Accrued wages appear as a current liability (accrued liabilities) on the balance sheet and as salary expense on the income statement. They are reversed at the beginning of the next period when actual payroll is processed.
Example
A company's fiscal year ends on December 31, but its bi-weekly payroll cycle covers December 28 through January 10. At year-end, employees have earned five days of wages ($50,000) that will be paid January 10. The company records $50,000 as accrued wages (liability) and $50,000 as salary expense to properly match costs to December.