Definition of Salaries and Wages
Salaries and wages are forms of compensation paid to employees of a company.
Salaries and Wages as Expenses on Income Statement
Salaries and wages of a company’s employees working in nonmanufacturing functions (e.g. selling, general administration, etc.) are part of the expenses reported on the company’s income statement. Under the accrual method of accounting, the amounts are reported in the accounting period in which the employees earn the salaries and wages.
Salaries and Wages of Employees in Manufacturing
At a manufacturing company, the salaries and wages of employees in the manufacturing operations are assigned to the products manufactured. When the products are sold, the costs assigned to those products (including the manufacturing salaries and wages) are included in the cost of goods sold, which is reported on the income statement. (The costs of the products that are not sold are reported as inventory on the balance sheet. Hence, the inventory will contain some of the manufacturing salaries and wages.
The salaries and wages of people in the nonmanufacturing functions such as selling, general administrative, etc. are reported directly on the current income statement as expenses in the period in which they were earned by the employees.
