Does working capital include salaries?

A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, so they count towards the calculation of the company's working capital. However, the company would not record paid salaries as current liabilities, so they would not affect the calculation of working capital.

Unpaid salaries represent a company's arrears to its workers for a specific period of time. A company typically expenses unpaid salaries immediately through a debit entry to its income statement. Since the company has not yet paid those salaries, it has a liability to its workers and must accrue them by recording an equivalent credit entry to its accrued salaries account, which is a current liability account on the company's balance sheet.

Unpaid salaries typically arise as a result of a timing difference between closing the company's books and when the actual payroll payment to its workers goes out of the cash account. Since current liabilities are part of the working capital calculation, unpaid salaries decrease the company's working capital.

Once an unpaid salary is cleared through a payment to the workers, accountants record a credit entry to the cash and cash equivalents account and a debit entry to the accrued salaries account. If a company has paid all salaries, it does not owe money to its workers and its balance sheet does not contain a current liability account. Therefore, salaries do not affect the working capital for a company that has paid all its wages.