Definition: Wages payable is a current liability account that records the amount of wages that are owed to employees for work that was performed by the employees in prior periods. In other words, wages payable is the amount of wages that employee hasn’t paid the employees for their work.
What is Wages Payable?
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.
Since the employer pays the employees on Friday, these employees will have to wait until January 3 to get their full December wages. At the end of December, the employer owes the employees two days worth of pay, so it has to record that liability in its accounting system and present it on its financial statements.
How is Wages Payable Recorded?
On December 31, the employer simply debits the wage expense and credits the wages payable account for the Monday and Tuesday wages. Here is the wages payable journal entry.
Later in January when the wages are paid, the employer would debit the wages payable account because the wages are no longer owed to the employees and credit the cash account for the amount of cash paid to the employees.