Cash paid for salaries will be greater than the salary expense for the same period if the salary payable balance increases.

Question

Quizplus · Accepted Answer

If the salary payable balance increases, it means that the company owes more money to its employees. This is reflected in the balance sheet as a liability. However, in the income statement, the salary expense is recognized as an expense when it is incurred, regardless of when it is actually paid. Therefore, the salary expense for the period will be the same even if the salary payable balance increases. However, the cash paid for salaries will be higher as more money needs to be paid out to settle the increased balance of salary payable.

Cash Paid for Salaries Will Be Greater Than the Salary