Lessons · Accounting · wages earned in one period and paid in the next
Worked in one period, paid in the next
Wages belong to the period in which the work was done, not the period in which the payment left the bank. Where a pay period straddles a month end, the days already worked are accrued as an expense and a liability at that date.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
Without it every month with a straddling pay run reports a cost that belongs partly to its neighbour, and the two months are wrong in opposite directions. It is also the entry most often forgotten in a first month-end close, because nothing has happened in the bank to prompt it.
How to think about it
Count the days worked up to the period end. Multiply by the daily cost. Debit wages expense and credit accrued wages. Reverse it when the pay run goes through.
Worked example
The pay period crosses the month endSome days worked belong to the month closing.
Days worked before the end x the daily costThe amount earned but unpaid.
Debit wages expense, credit accrued wagesThe cost lands in the right month; the obligation appears.
Reversed when the run is paidOr the cost is counted twice.
Your turn
Name which period wages belong to.
Wages belong to the period the work was , not when it was paid
Solve one, graded on the server
The trap
Accruing the net rather than the full cost. The accrual has to carry the gross and the employer contributions on top, because all of it was incurred by the work, and accruing the net understates the month by everything withheld.