Small Corporation uses a Wages Clearing Account for its payroll disbursements. At the end of February, a reasonably large debit balance remained in this account. The most likely reason for this is that
A)more labor cost had been assigned to the expense accounts than had been paid.
B)some labor cost had not been properly classified in the expense accounts.
C)some employees had not yet cashed their checks.
D)not enough cash had been transferred to the bank account.

Question

Quizplus · Accepted Answer

The wages clearing account is used to record payroll disbursements, but if some labor cost had not been properly classified in the expense accounts, it could result in a debit balance remaining in the clearing account. This means that not all of the payroll expenses were properly accounted for and assigned to the appropriate expense accounts, resulting in a discrepancy between the amount paid out and the amount recorded in the company's accounting records.

Small Corporation Uses a Wages Clearing Account for Its Payroll