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Individuals generally work a 9-5 job with the expectation that they receive payment for the work done either at the end of each working day, weekly, or monthly. This payment received for the job completed is called a salary. The wages payable account is usually used at the end of a period like a year-end. Many times the end of the year doesn’t fall exactly at the end of a payroll period. For example, assume employees are paid every Friday and December 31 lands on a Tuesday. This means that at the beginning of the next year, January 1, the employer owes the employees two days worth of pay for the Monday and Tuesday worked in December.
The employer pays these withheld amounts to the Internal Revenue Service . In addition to income taxes, FICA requires a deduction from employees’ pay for federal social security and Medicare benefits programs. FICA taxes are withheld by the employer and are deposited along with federal income taxes in a financial institution. Businesses declare a cut-off date for preparing their financial statements. Sometimes, short-term debt obligations are incurred because of this cut-off. These liabilities will appear in the balance sheet under the current liabilities section.
Payroll Department Duties
Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of $400,000. BE5-14 Martinez Corporation engaged in the following cash transactions during 2017. A non exempt employee is one who qualifies to earn at least minimum wage and receive overtime under the federal Fair Labor Standards Act . Also, suppose you have three employees who each earn $20 per hour and work 40 hours during weekdays and 10 hours of overtime at $30 per hour during the weekend from February 21 to February 27. And on February 28, they earned the regular $20 per hour for eight hours.
The FICA taxes paid by the employers are an amount equal to the FICA taxes paid by the employees. The amount of the increase to payroll tax expense is determined by adding the amounts of the three liabilities. If you credit salaries payable, what you debit salaries payable liability in accounting is salaries expense. Salaries payable refers to the obligation of a company to pay… The income statement, balance sheet, the statement of cash flows are three financial reports that every publicly-traded company must release each quarter.
Wage Expense: The Cost to Pay Hourly Employees
These statements provide a financial overview of the business’s activity over the course of the accounting cycle. The current liability account which reports the amount of salaries earned by a company’s employees, but which have not yet been paid by the company. These payables are required to recognize the salaries expenses in the company’s financial statements at the end of the period. Thus, the amount of salaries payable is usually much lower than the amount of salaries expense. A company may employ a large number of salaried personnel and still not have any salaries payable as of the end of a reporting period, if salaries are typically paid at the end of that period. This is because there are no days at the end of the period for which employees have earned their salaries, but have not yet been paid.
- Learn the definition and examples of current liabilities, and why they are important.
- Under the accrual method of accounting, wage expenses are recorded based on when the work was performed.
- As an employer, you are obligated to deduct from the gross pay and pay on the employee’s behalf such items as taxes, health insurance premiums and union dues.
- These will then result in the reduction of their assets and net worth and an increase in their liabilities, thus, they will be incurring losses instead of profits.
- As you may recall, COGS refers to direct costs related to the production of goods, which include the cost of materials, labor, and manufacturing overhead.
- Salary payable is an account that entities use to record accrued salary expenses.