Accrued Wages — Period-End Accrual for Wages Earned but Not Yet Paid
Accruing wages earned by employees in the current period but not yet paid due to the timing mismatch between period-end and the next scheduled payday.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Salaries and Wages Expense (Accrual — Earned in Period, Paid Next Period) | Expense (+) | 1,850,000.00 | - |
| Accrued Wages Payable (Liability at Period-End) | Liability (+) | - | 1,850,000.00 |
💡 Accountant's Note
The pay period rarely aligns perfectly with the accounting period — a company on a bi-weekly payroll ending Friday, with the period-end on a Tuesday, will have 5 days of wages earned (Saturday–Wednesday) that won't be paid until the following Friday. These earned wages must be accrued at period-end. The accrual = (daily compensation rate per employee × days worked since last payday through period-end). For a company with $500,000/day in total wages: a 5-day accrual = $2.5M accrued wages. The accrued wages liability includes: (1) salary and hourly wages accrued but unpaid, (2) employer payroll tax on the accrued wages (FICA and SUI on the same amounts), (3) benefits cost attributable to the accrual period. The accrual is reversed in the following period when actual payroll is processed (the reversal cleanly separates the prior period's accrued portion from the new period's fresh payroll). This is one of the most universal month-end entries in all of accounting.
Practitioner & Systems Framework
💻 ERP Architecture
Payroll systems integrated with the GL (Workday, Oracle HCM, SAP SuccessFactors) can automatically calculate the period-end payroll accrual — the system knows each employee's daily rate and the number of days since the last pay date. Less integrated payroll providers (ADP for smaller employers) may require a manual calculation by the controller: payroll register last pay period × (working days in accrual period / working days in full pay period). The reversal of the prior period's accrual must be coded to the same accounts as the original accrual to avoid double-counting when actual payroll is processed.
⚠️ Audit Flags
Accrued wages cutoff is one of the most common audit adjustments. Auditors test: (1) Days in the accrual period — are the exact days correctly counted from the last pay date to period-end? (2) Rate accuracy — are the rates used consistent with current payroll records? (3) Terminations — are wages for employees who left during the accrual period properly included? (4) Overtime and commissions in the accrual period — are these variable components included in the estimate? (5) Reversal — was the prior period's accrual reversed in the new period?
📄 Required Documentation
Most recent payroll register (gross wages by employee), pay period start/end dates, period-end date relative to last payday, accrual calculation (daily rate × days in accrual), payroll tax on accrued wages calculation, reversal entry documentation, and reconciliation of accrued wages to payroll register.
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