Accrued wages refers to the amount of liability remaining at the end of a reporting period for wages that have been earned by hourly employees but not yet paid to them. This liability is included in the current liabilities section of the balance sheet of a business. Accrued wages are recorded in order to recognize the entire wage expense that a business has incurred during a reporting period, not just the amount actually paid.
For example, Mr. Smith is paid $20 per hour. He is paid through the 25th day of the month, and has worked an additional 32 hours during the 26th through 30th days of the month. This unpaid amount is $640, which the employer should record as accrued wages as of month-end. This accrual may be accompanied by an additional entry to accrue for any related payroll taxes.
The accrued wages entry is a debit to the wages expense account, and a credit to the accrued wages account. The entry should be reversed at the beginning of the following reporting period.