Does Wages Payable Go on the Balance Sheet?

Wages represent money a business must pay employees after they abide by a contractual agreement, perform the required tasks or meet any other occupational criteria of the agreement. Finance people often use terms such as salaries, wages and compensation interchangeably — although their usage may differ, depending on contractual terms. For a business, wages payable are short-term debts because in-house treasurers must issue checks in the next 12 months. In contrast, the repayment window for long-term debts — such as bonds payable — exceeds one year.

A balance sheet offers a glimpse into the assets and equity items that an organization relies on to operate and make money. The business also borrows to generate revenue, ensuring it receives affordable interest rates and keeps a lean balance sheet. This is what debt specialists say when referring to a corporation with a balance sheet displaying more resources and equity than liabilities. Publishing a balance sheet is a confidence booster and a truth teller because it helps top leadership dismiss conjecture that the business might face insolvency — which happens when corporate debts exceed assets. Balance sheet is identical with statement of financial position or report on financial condition.

To record contractual pay, a corporate bookkeeper debits the wages expense account and credits the wages payable account. When the business pays employees, the bookkeeper debits the wages payable account (to bring it back to zero) and credits the cash account. The balance in the wages payable account arises out of a timing difference between the time payroll personnel calculate salaries due and when corporate treasurers remit paychecks. In a financial lexicon, crediting cash — an asset account — means reducing company money. Dont mistake this for a bank credit, which typically increases funds in a clients account.

Wages payable management sits atop the list of things a companys leadership heeds because unpaid personnel — or those paid with significant delay — are less likely to be productive and less confident about the companys economic standing. Employees may consent to one or two delayed checks, but three or six months of missed payroll might give them pause for thought — if not outright resignation for some workers.