The end of the financial year for Reynolds Ltd is 31 December. At that date, salaries and wages expenses of $580 000 is closed to the profit and loss summary account. This balance includes $550 000 for salaries and wages paid in cash during the year and accrued wages at the end of the year of $30 000. Reynolds Ltd records a reversing entry for the accrued wages on 1 January. The first payment to employees for salaries and wages in the new financial year is $35 000. This payment would be recorded as:
A) DR Salaries and wages expense $35 000; CR Bank $35 000
B) DR Salaries and wages expense $5 000; CR Bank $5 000
C) DR Accrued Salaries and wages $30 000; CR Bank $30 000
D) DR Salaries and wages expense $35 000; DR Accrued salaries and wages $30 000; CR Bank $65 000

Question

Quizplus · Accepted Answer

The reversing entry for the accrued wages of $30,000 on 1 January would debit the Salaries and Wages Expense and credit Accrued Salaries and Wages, effectively nullifying the accrual made at the year-end. When the actual payment of $35,000 is made, it is recorded against the Salaries and Wages Expense for the new financial year, as the accrual from the previous year has already been reversed.

The End of the Financial Year for Reynolds Ltd Is