You might wonder why some of the money hasn’t been handed out yet, even though it belongs to the employees.
This is where “Wages Payable” comes into play. It’s like a promise from a company to pay its workers for jobs they’ve already done. Our article will break down this term into bite-sized pieces so you’ll get it in no time! We’ll show how businesses record what they owe their team members as wages payable—a debt that needs paying soon.
Ready to clear up any confusion about wages payable with examples that make sense? Keep reading—we’ve got your back!
Key Takeaways
- Wages payable are debts a company owes to its workers for jobs done but not paid yet.
- To record wages payable, companies list them under Current Liabilities and make journal entries for earned wages.
- If employees earn money but aren’t paid immediately, the owed amount will show as Wages Payable on the balance sheet until payment is made.
Table of Contents
Definition of Wages Payable
Wages payable is money owed to employees for work they have done. It’s a promise that a company will pay its workers soon. This debt pops up on the ‘current liabilities‘ part of a balance sheet because it’s usually paid off quickly, often within the next payroll cycle.
In accrual accounting, we record wages payable to line up costs with when they actually happen. It helps link the money made in one period with expenses from the same time. Let’s say an employee works in December but gets paid in January.
We would still show those wages as payable in December’s books to match when the work was done.
Next, let’s explore how businesses keep track of their wages payable, ensuring everything balances out at year-end.
How is Wages Payable Recorded?
Companies track what they owe to their workers through Wages Payable. It’s like a promise to pay the money earned by employees. Here are key steps to record it:
- First, record employee wages as an expense on the income statement.
- Add Wages Payable under Current Liabilities on the balance sheet.
- Use journal entries to capture the amount of wages earned but not yet paid.
- Debit the Wages Expense account when a worker earns money.
- Credit Wages Payable at the same time because this debt is now owed.
- Update records after paying workers. Debit Wages Payable to reduce what you owe.
- Credit Cash since you’re paying out money from the company account.
- List all employees and their earned wages for that period.
- Total these amounts for your journal entry.
- Match cash disbursements with what you recorded as payable.
- Double – check entries for payroll expenses and liabilities.
- Even if cash isn’t handed out, record expenses when they happen.
Examples of Wages Payable
CafeDelight has 20 employees who each earn $500 per week. The pay period ends on Friday, but the company pays wages the following Monday. On its balance sheet for the week ending on Friday, CafeDelight shows a Wages Payable of $10,000.
This is money owed to employees for that week’s work.
Let’s say CafeDelight had an unexpected event and couldn’t pay wages on the usual Monday. It records this as unpaid wages in its books. The Wages Payable would stay at $10,000 until CafeDelight can pay its staff their earned income.
Once paid, it will make a journal entry to decrease Wages Payable and reduce cash by the same amount.
Conclusion
Understanding wages payable helps keep a company’s books accurate. It shows what they owe their workers. Knowing how to record these wages means better financial statements. This knowledge helps businesses make smart choices.
Keep learning to handle wages like a pro!
FAQs
1. What exactly are wages payable?
Wages payable are the money a company owes to its employees for work they have done but haven’t been paid for yet.
2. Is wages payable the same as salary?
No, wages payable refers to the owed amounts for hourly work, while a salary is normally a fixed amount paid regardless of hours worked.
3. Where do I see wages payable on financial statements?
You can find wages payable listed under current liabilities on a company’s balance sheet.
4. Can wages payable affect a business’s cash flow?
Yes, because when businesses pay out their wage obligations, it reduces their available cash.
5. Are taxes included in the calculation of wages payable?
Taxes that have been withheld from employee earnings are part of what makes up total wages payable.