Nathan Company's plant operates five days per week with a daily payroll of $50,000.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 Nathan's net income?

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Quizplus · Accepted Answer

Since employees are paid every Tuesday for the prior week's work, on April 30, the accrued payroll for Monday through Friday of that week (April 29-30) would not be paid until the following Tuesday, May 7. Therefore, as of April 30, the accrued payroll would be $50,000 per day for Monday through Friday of that week, totaling $250,000. This would be recorded as an expense for the month of April, and would decrease the net income by $250,000. However, since this expense would be paid in the following month (May), the accounts payable would also increase by $250,000. Therefore, the net effect on Nathan's net income would be a decrease of $100,000 ($250,000 expense minus $250,000 accounts payable).

Nathan Company's Plant Operates Five Days Per Week with a Daily