Many companies turn to their accountants to prepare these statements because they can be complicated and take a lot of time and effort. Don’t be afraid to call your accountant if you think you’re getting in over your head. The financial health of your small business depends on your being able to see and interpret these critical financial details. The details are important because they also show potential lenders if the business can pay its debts. Some of your duties are made up of the things you love to do…the reason you’re in business in the first place.

It may go by other names, including the profit and loss statement or the statement of earnings. No matter the name, it’s a measure of your company’s performance.

What To Do When Your Balance Sheet and Income Statement Are Incorrect

Think of stockholders’ equity as the assets that you as a small business owner and other shareholders fully own. Salary expense is a fixed-rate cost and depends on each employee’s salary contract terms. But, sometimes this amount is not required to pay based on the company and staff’s different reasons. The above journal entry wipes the slate clean by removing ANY Salary that is to be paid from the books.

The income statement is a different financial statement that shows the cash flow of the company over a given period of time, such as a quarter or a full year. For example, if you have a quarterly income statement for a company and look under operating expenses, there should be a line item for salaries that shows how much the company spent on wages during that quarter. Your total equity balance allows a CEO to quickly assess if their business is more valuable than it was last month. Problems can arise when something is recorded wrong on either of the reports. For example, if expenses are coded as an asset on the balance sheet when it should be included on the income statement, it can affect both reports; i.e. the income statement would be overstated.

Accrued Expense Meaning

Your balance sheet reflects business expenses by drawing down your cash account or increasing accounts payable. For companies that produce goods (i.e., manufacturing companies), a portion of their wage expense may be aggregated into costs of goods sold on the income statement. As you may recall, COGS refers to direct costs related to the production of goods, which https://business-accounting.net/ include the cost of materials, labor, and manufacturing overhead. At its core, inventory is nothing more than raw materials purchased by the company and transformed into a sellable product or service. The way this plays out on the balance sheet is that raw materials are added as a current asset — but NOT yet inventory — and accounts payable is credited.

In this case, the record would be passed to the journal entry on December 31, 2019, for the salaries accrued from December 28, 2010, to December 31, 2019. Therefore, the total number of days during the period is four, i.e., 28, 29, 30, and 31. Let us take DFG Inc.’s example, which closes its books on March 31 of every year. As of the last reporting date, i.e., March 31, 2020, Do Salary Expenses Go on a Balance Sheet? the company has $50,000 due in salaries which it had to pay the following month, i.e., April 2020. Show the journal entry for the given transaction on March 31, 2020. Payroll is one of the largest expense categories for most businesses, and it affects a company’s value by drawing down its bank account but potentially adding to its overall worth by enhancing its human capital.