Question

When salaries and wages expense for the year is computed, why are beginning accrued salaries and wages subtracted from, and ending accrued salaries and wages added to, salaries and wages paid during the year?

Short answer

Salaries and wages paid during the year will consist of the disbursement of any wages that are accountable to the prior year, but were yet to be disbursed at the end of the prior year. This amount is regarded as an expense of the prior year, but not of the current year and, therefore, should be deducted while ascertaining salaries and wages expenses for the current year.

Step-by-step solution

Meaning of Salary and Wages Expense

Salary expense is an expense that is constant in nature and is dependent on the contract of the worker’s salary.

Computation of salary and wage expenses

According to the accrual method of accounting, wages and expenses are listed when the work was done as opposed to when the work is disbursed. However, under the cash basis of accounting, wage expenses are listed only when the work is disbursed.

Subtraction of beginning accrued salaries and wages and addition of ending accrued salaries and wages

The accrual amount at the end of the previous year. It is treated as an expense of the previous year and not of the present year, and therefore should be deducted in ascertaining salaries and wages expenses. Correspondingly, salaries and wages paid during the current year will not comprise any salaries, and wages account for the working hours during the existing year, but are not usually disbursed until the next year. Thus, these should be summed while ascertaining salaries and wageexpenses.