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 as a temporary account where payroll disbursements are first recorded before being classified to the appropriate expense accounts. A debit balance in this account at the end of the month suggests that some labor cost had not been properly classified in the expense accounts, as it indicates that more money has been paid out for wages than has been recorded as an expense. This could result from errors in recording or classifying labor costs, or from delays in processing payroll transactions. Options A, C, and D do not explain why a debit balance would remain in the Wages Clearing Account.

Small Corporation Uses a Wages Clearing Account for Its Payroll