If a firm accrues the payroll due but not paid at the end of a financial period,what should it do on the first day of the next financial period?
A)It should create a reversing entry in the General Journal.
B)It should disburse the accrued pay to the employees.
C)It should create a reminder about the accrual to ensure accuracy of computations on the next pay date.
D)It should make a note to create the reversing entry at the end of the next financial period.

Question

Quizplus · Accepted Answer

When a firm accrues the payroll due but not paid at the end of a financial period, it should create a reversing entry in the General Journal on the first day of the next financial period. This is done to ensure accuracy in the accounts and to reverse the previous accrual entry. The purpose of a reversing entry is to avoid duplicate counting of the expense in both periods.

If a Firm Accrues the Payroll Due but Not Paid