The total payroll is $4,000 per day of work.If the accounting period ends on Wednesday of a given week,what adjustment must be made to the company's accounting records?
A)Decrease Cash by $12,000 and decrease shareholders' equity by recognizing Salaries expense for the same amount.
B)Increase Salaries payable by $20,000 and decrease shareholders' equity by recognizing Salaries expense for the same amount.
C)Increase Salaries payable by $12,000 and decrease shareholders' equity by recognizing Salaries expense for the same amount.
D)No adjustment is necessary because there is no expense until the employees are paid on Friday.

Question

Quizplus · Accepted Answer

Since the accounting period ends on Wednesday and the total payroll for one day is $4,000, the company would owe three days' worth of payroll ($4,000 x 3 = $12,000) for the remaining days of the week. This means that the company should increase Salaries Payable by $12,000 to reflect the amount owed to employees at the end of the accounting period. The company should also recognize Salaries expense for the same amount, which would decrease Shareholders' Equity. Option B is incorrect because increasing Salaries Payable by $20,000 would assume that the company owes five days' worth of payroll, not three. Option A is incorrect because decreasing Cash would not be appropriate since the employees have not been paid yet. Option D is incorrect because Salaries expense should be recognized at the end of the accounting period, regardless of whether the employees are paid on Friday or not.

The Total Payroll Is $4,000 Per Day of Work