On December 31, Year 1, Gaskins Company owed $4,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, Year 1, what will be the effect of this accrual on the following items for Gaskins? $\begin{array}{cc}
\text { Net Income} & \text {Cash Flow from Operating } \
& \text { Activities }
\end{array}$
a.$\begin{array}{ll}
\text { Not Affected } && \text { Not Affected } \\end{array}$

b.$\begin{array}{ll}
\text { Decrease } &&&& \text { Not Affected } \\end{array}$

c.$\begin{array}{ll}
\text { Increase } &&&& \text { Decrease } \\end{array}$

d.$\begin{array}{ll}
\text { Noeffect } &&&& \text { Decrease }
\end{array}$

Question

On December 31, Year 1, Gaskins Company owed $4,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, Year 1, what will be the effect of this accrual on the following items for Gaskins? $\begin{array}{cc}
  \text {  Net Income} &  \text {Cash Flow from Operating  } \
&  \text { Activities }
\end{array}$
a.$\begin{array}{ll}
\text { Not Affected } && \text { Not Affected } \\end{array}$

b.$\begin{array}{ll}
\text { Decrease } &&&& \text { Not Affected } \\end{array}$

c.$\begin{array}{ll}
\text { Increase } &&&& \text { Decrease } \\end{array}$

d.$\begin{array}{ll}
\text { Noeffect } &&&& \text { Decrease }
\end{array}$

Quizplus · Accepted Answer

The accrual of salaries expense will decrease net income because it is an expense that needs to be recognized in the current period. However, it will not affect cash flow from operating activities until the salaries are actually paid.

On December 31, Year 1, Gaskins Company Owed $4,500 in Salaries