Salaries expense

Salaries expense is the fixed pay earned by employees. The expense represents the cost of non-hourly labor for a business. It is frequently subdivided into a salaries expense account for individual departments, such as:

  • Salaries expense - accounting department

  • Salaries expense - engineering department

  • Salaries expense - human resources department

  • Salaries expense - marketing department

  • Salaries expense - sales department

Hourly wages may also be included in this expense category, in which case the account is usually entitled "Salaries and Wages - [department name]" to show the more comprehensive nature of the account.

Any of the preceding accounts appear in the income statement, and may be aggregated into a larger cluster of expenses, such as a single line item of expenses for a department, or within the cost of goods sold line item.

A salary is a fixed amount paid to an employee over a predetermined period of time; it is not based on the number of hours worked or number of units produced, and so should not change from period to period, unless a pay raise or reduction is implemented.

The amount recorded as a salary expense may vary depending on the basis of accounting used. If the cash basis of accounting is used, only record an expense when a salary is paid to an employee; this can be inaccurate, especially when there is evidence of a liability to the employee in a prior period. If the accrual basis of accounting is used, record an expense when the company incurs a liability for it, whether or not it is actually paid to the employee at that time.

If a salary expense is related to production activities, it may be rolled into a production overhead account and then allocated to the cost of goods sold or inventory. If a portion of overhead were to be charged to inventory, it will eventually be charged to the cost of goods sold, either when the goods are sold or declared obsolete.  If salary expense is related to general, sales, or administrative activities, then it is charged to expense in the period incurred.

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