The Payroll Cycle and Accounting Entries: When Salaries Are Accrued and When They Are Paid

This guide explains the payroll cycle in the system from start to finish: from setting up the salary components and contracts, to creating the payroll run and payslips, then approving and paying them, with all the accounting entries the system creates automatically, and when the salaries expense is recognized as accrued and when it is settled.

Summary: When Is the Salary Recognized and When Is It Paid?

Stage	What Happens in Accounting	Entry Date
Creating the payroll run and payslips	No entry	—
Approving the payslip	The salaries expense is recognized and the net salary is recorded as a liability in Accrued Wages (the salary has become accrued)	The registration date of the payroll run
The period between approval and payment	The salary is accrued and unpaid, and appears as a credit balance in Accrued Wages	—
Payment	The liability is settled: Accrued Wages is debited and the treasury or bank is credited	The payment date

Brief Workflow

1. Set up the salary components and their accounts → 2. Add the salary templates and contracts → 3. Create the payroll run → 4. Review the payslips → 5. Approve the payslips (the accrual entry) → 6. Payment (the settlement entry) → 7. Review the reports

First: The Accounts Used in Payroll

The system creates these accounts automatically on first use, and you can see them in the chart of accounts:

Account	Its Place in the Chart of Accounts	Its Role
Salaries and Wages	Expenses	The default account for the salaries expense of any accrued component that doesn’t have its own account.
Accrued Wages	Current Liabilities	The account of unpaid accrued salaries (the net salaries of employees after approval until payment).
Advances	Current Assets	The advance amounts disbursed to employees and what was collected from them.
Salary component accounts	As you choose	If you specify the default account for a salary component (such as housing allowance or insurance), it is used instead of the general account.
The salary account for each employee	As you choose	When you choose the account routing Specify per Each Employee, it is used instead of Accrued Wages.

Employee Accounts Routing

From Account Routing – Employee Salary, choose the employee accounts routing type:

• Automatic (the default): the net salaries of all employees are recorded in one account, Accrued Wages.
• Specify per Each Employee: you choose the salary account in each employee’s file (requires enabling general accounting), so each employee’s accrued amount appears in an independent account. An employee without an account is recorded in Accrued Wages.

Second: Setting Up Salary Components

From Salary Components, create the salary components:

Type	Examples	The Account
Earning	Basic salary, housing allowance, transportation allowance, commissions	In the Account Details section, choose the default account (an expense account). If you leave it empty, Salaries and Wages is used.
Deduction	Social insurance, income tax, penalties, absence	Choose a liability account for the amounts you will remit to another party (such as “Social Insurance Payable”). If you leave it empty, it is deducted from Salaries and Wages directly.

Third: Salary Templates and Contracts

Create salary templates that gather the components and their values or formulas, then create the contracts for each employee and link them to the template. The payslips are calculated from the employee’s active contract.

Fourth: Creating the Payroll Run

1. From Payroll Runs, add a new run.
2. Specify the registration date (which is the accrual entry date), the start and end date of the period, the currency, and the employees, and you can enable attendance validation.
3. Save; the payslips are created in the background with the status Issued.
4. Review each payslip and edit it if needed (editing is available only before approval).

Fifth: Approving the Payslips — The Salary Accrual Entry

Click Approve on the payslip page, or Approve All on the run page (the permission to approve payslips). When approved:

• The payslip status becomes Approved.
• The advance installments linked to the payslip are considered paid.
• One entry is created or updated for each payroll run that gathers all the approved and paid payslips in it, with the date of the registration date.

The Form of the Accrual Entry

Item	Side	Account
Each earning component (basic, allowances…)	Debit	The component’s default account, or Salaries and Wages
Each deduction component	Credit	The component’s default account, or Salaries and Wages
An advance installment deducted from the salary	Credit	Advances
The net salary	Credit	Accrued Wages (or the employee’s salary account)

Example: an employee’s payslip for March

• Basic salary 5,000 and housing allowance 1,000 (without a special account).
• An insurance deduction of 450 on the “Social Insurance Payable” account.
• An advance installment of 500.
• Net salary = 6,000 − 450 − 500 = 5,050.

The accrual entry when approved (with the run’s registration date March 31):

Account	Debit	Credit
Salaries and Wages	6,000	—
Social Insurance Payable	—	450
Advances	—	500
Accrued Wages	—	5,050

Canceling the Approval

The Cancel Approval button returns the payslip to Issued, returns the advance installments as unpaid, and the run’s entry is rebuilt without it. If the approval is canceled on all payslips, the entry is deleted. The approval of a paid payslip cannot be canceled except after deleting the payment.

Sixth: Accrued Unpaid Salaries

After approval and before payment, the salary is accrued: the expense is recognized in its month, and the liability appears in Accrued Wages within Current Liabilities. To know the accrued unpaid salaries:

• Open the Accrued Wages account in the general ledger; its credit balance = the accrued salaries that haven’t been paid.
• Or open Payroll Runs and review the runs with the status Approved.

Seventh: Paying Salaries — The Settlement Entry

1. Open the run and click Pay (it appears when there are approved payslips and you have the permission to pay payslips).
2. Choose a treasury / bank account and the payment date.
3. Choose Pay All Approved Payslips or Pay Selected Payslips to pay specific employees.
4. Save.

The system creates an expense (a payment voucher) linked to the payment with the payment date, and the payslips become Paid. The run becomes Paid only when all its payslips are paid.

The settlement entry (the previous example, payment date April 5):

Account	Debit	Credit
Accrued Wages	5,050	—
Treasury / Bank	—	5,050

After this entry, the Accrued Wages balance for this employee becomes zero. As for the deducted insurance (450), it stays a liability until it is remitted to the party with an entry or a payment voucher from the “Social Insurance Payable” account.

• There is no partial payment of a single payslip; each payslip is paid with its full net. Partial payment means paying some payslips only.
• The treasury’s currency must be the same as the run’s currency.
• The resulting payment voucher cannot be edited or deleted from the expenses screen; to cancel the payment, delete the payment from the run, so the payslips go back to Approved and the settlement entry is deleted and the accrual entry remains.

Eighth: Advance Entries

Operation	When	The Entry
Disbursing the advance to the employee	When saving the advance, with the submission date	Debit: Advances / Credit: the chosen treasury (created as a payment voucher).
Repaying the installment from the salary	When approving the payslip	Within the run’s entry: credit Advances (there is no separate entry).
Repaying the installment manually outside the salary	At payment, with the payment date	Debit: the chosen payment account / Credit: Advances.

Example

An advance of 3,000 repaid over 6 installments from the salary (500 monthly) with enabling payment from the payslip: at disbursement debit Advances 3,000 / credit the treasury 3,000. Then each month the installment appears as an “Advance #” deduction in the payslip and a credit to Advances of 500 is recorded within the run’s entry, until the advance balance becomes zero.

Ninth: Entries Resulting from the Payroll Cycle

The Entry	Created When	The Date	Deleted or Changed When
The payroll run entry (the accrual)	Approving the payslips	The registration date	Canceling the approval (it is rebuilt, and deleted if no approved payslips remain)
The salary payment voucher (the settlement)	Paying the payslips	The payment date	Deleting the payment
The advance payment voucher	Adding the advance	The submission date	Editing or deleting the advance
The manual installment settlement entry	Paying the installment manually	The payment date	Canceling the installment payment

Important Entries and Messages

Message	Cause
“You cannot edit the payslip because it is approved or paid”	A payslip cannot be edited after approval; cancel the approval first.
“You cannot delete a payslip that is paid or approved”	Cancel the payment and then the approval before deleting.
“You cannot delete the payroll run because it contains paid or approved payslips”	—
“You cannot create, approve, reject, or pay a payslip in a closed period”	The registration date or the payment date is in a closed period.
“There are no approved payslips”	There are no payslips ready for payment.
“The currency chosen for the bank differs from the payment currency”	Choose a treasury with the same currency as the run.
“The advance cannot be deleted as long as there is one or more paid installments”	—

Reports

• The payroll report by employee, monthly, yearly, by department, and by branch.
• The employee advances report.
• The general ledger for the Accrued Wages account to follow what is due and what is paid, and the trial balance.

Frequently Asked Questions

• When does the salaries expense appear in the income statement? When the payslips are approved, on the run’s registration date, not when it is paid.
• Do I need to make a manual entry for the accrued salaries? No, approving the payslips creates the accrual entry, and the payment creates the settlement entry.
• Why is there no entry after creating the run? The entry is created at approval only.
• How do I know the accrued salaries that haven’t been paid? From the balance of the Accrued Wages account, or the runs with the status Approved.
• Where does the insurance deducted from the employee go? To the default account of the deduction component; specify a liability account for it so it appears as owed to the party.
• Can part of an employee’s salary be paid? No, the payslip is paid in full; you can pay the payslips of some employees only.
• Why does a balance remain in Accrued Wages after paying all salaries? Usually the account routing or the employee’s salary account was changed between approval and payment, or there are approved payslips that haven’t been paid yet.