Under accrual accounting- which month is payroll/wages reported in when it goes across 2 months?

 Author: PayrollDeanne(Taxicorn)Taxicorn

25 Jan 2024

Hiya @akowa01 👋

I was hoping an accountant would jump in and answer that, but as a payroll professional, I will tell you what all of my (large/big business) customers have done. Particularly as, in the payroll product I support (Tier 1 product), it is configured to automate the EOM accrual postings in payroll when the payroll period doesn't align to the financial periods.

Accrual accounting is about the recognition of the expense when it is incurred, not paid. That means, there will be two methods for the EOM accruals:

1. Actuals - when the pay is finalised before you close off the ledger for the month, so the actual expenses are known. Easy!
2. Estimates - when the pay is in progress (or not started) and you have to make estimates based upon the prior period. A lot more complex, as you have to examine the types of payments made, as some of them won't be included in that "current" pay. For example, termination payments, perhaps overtime (depends), perhaps leave without pay.

Just to be clear, the timesheet being approved won't assist you with the financial amounts as payroll valuates time. As you can tell, my customers have massive complexity in their payroll arrangements, yours may be quite simple in comparison?

Another factor is where the payday is in relation to the pay period end date. When you post payroll each pay to the ledger, do you use the posting date of the payday or the pay period end date? My customers use the pay period end date, as that is when the expense is incurred. (Makes automated bank reconciliation within the ledger such fun 🤪)

Just my payroll perspective on the accounting for payroll 😉

Deanne