What are accrued wages?

Accrued wages represent employee compensation earned but not yet paid at period-end and are recorded as a liability on the balance sheet under accrual accounting. For professional service firms, wage accruals ensure labor costs are matched to the period in which the work was performed.

Key characteristics

• Wages earned not yet paid

• Liability on the balance sheet

• Required for accrual accounting

• Matches expense to work period

• Reversed when paid

• Part of the month-end close

Why it matters for professional service firms

Without wage accruals, monthly financials misrepresent labor costs based on pay period timing. Accruals ensure expenses are recognized in the period when the work occurred. Professional service firms using accrual accounting should accrue wages at month-end for work performed but unpaid.

Real-world example

Kevin's pay period ended December 31, but payday was January 5. Wage accrual: 5 days of December work totaling $42,000 in gross wages plus $3,800 employer taxes accrued at December 31. Journal entry: debit wage expense $42,000, debit payroll tax expense $3,800, credit accrued wages liability $45,800. January 5 payroll reversed the accrual. December financials reflected true labor costs.