FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 1 7100. General Accounting Procedures, 7173 Accrued Labor Expense A. The Purpose of This Policy Payments.

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Presentation transcript:

FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc General Accounting Procedures, 7173 Accrued Labor Expense A. The Purpose of This Policy Payments for salaries, wages, payroll taxes and benefits may occur in financial periods different from when we incurred the obligation to pay for them. Therefore, we need to make adjusting entries to report the actual labor expense in the correct financial period. The purpose of this policy is to assure that adjusting entries are made consistently and in a manner that most accurately show the Company’s financial performance for each financial period. Continue ►

FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc General Accounting Procedures, 7173 Accrued Labor Expense B. Accrual of Salaries and Wages The second pay period of each month ends on the last day of the month, but it is not paid until the following month. So, if the paychecks are dated as of the payday (rather than as of the last day of the month), the accountant makes adjusting entries. When the amount of the pay period's salaries and wages is known for each payroll expense account, make the following entries as of the last day of the previous month: Debit: Each salary and wage account Credit: Liability account, accrued payroll Continue ►

FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc General Accounting Procedures, 7173 Accrued Labor Expense B. Accrual of Salaries and Wages (cont.) On the day the paychecks are prepared post the following transactions: Debit: Liability account, accrued payroll Credit: The bank account from which the payments were made Continue ►

FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc General Accounting Procedures, 7173 Accrued Labor Expense C. Accrual of Bonuses Handle bonus liabilities and payments similarly to salaries and wages. Post the liability when it occurs and debit the liability when it is paid. D. Accrual of Payroll Taxes The accountant allocates the expense for payroll taxes to the financial period (month) in which the payroll obligation occurred— not the month in which the taxes were paid. This allocation is by department. End

FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc General Accounting Procedures, 7173 Accrued Labor Expense