A local medical clinic operates five days per week with a daily payroll of $100,000. Employees are paid every Tuesday for the prior week's work (Monday through Friday). The last day of the month is Tuesday, April 30. What effect does the accrual at April 30 have on the clinic's net income?

Question

Quizplus · Accepted Answer

Based on the given information, the clinic's payroll for the week of April 22-26 (Monday to Friday) will be paid on Tuesday, April 30. Since April 30 is the last day of the month, it falls under the period of April and needs to be accrued.

Accrued expenses refer to expenses that have been incurred but not yet paid. In this case, the clinic has incurred the payroll expense of $100,000 for the week of April 22-26, but it will be paid on May 7 (Tuesday of the next week). Therefore, as of April 30, the clinic needs to accrue for this expense.

The accrual for the payroll expense would be:

Number of days from April 27 to April 30 (4 days) / Number of workdays in April (20 days) x Payroll per day ($100,000) = $20,000

This means that the clinic needs to record a payroll expense of $20,000 as of April 30, which reduces its net income for the month. Therefore, the correct answer is (C) Decrease by $200,000.

A Local Medical Clinic Operates Five Days Per Week with a Daily