Payroll accrual recognises the cost of pay in the period an employee earns it, rather than the period it is actually paid out. If a pay period straddles a month-end, the days worked before the cut-off are accrued as an expense in that month, even though the cash payment happens in the next.
What it means
This follows the matching principle - the expense belongs to the period the work was done, not the period the bank account moves. Leave accrual works the same way for untaken leave: the cost is recognised as the entitlement builds up, not only when it is eventually paid out or taken.
Where it fits in
Payroll accruals are a standard month-end adjustment, posted through the payroll journal alongside the normal pay-run entries, so the financial statements reflect the true cost of the period regardless of when the cash settles.
Key rules
- Recognises payroll cost in the period earned, not the period paid.
- Applies the matching principle to a pay period straddling a period-end.
- Leave accrual follows the same logic for untaken leave entitlement.
- A standard month-end adjustment posted through the payroll journal.
