The total payroll is $4,000 per day of work.If the accounting period ends on Tuesday of a given week,what adjustment must be made to the company's accounting records?
A)Increase Salaries payable by $8,000 and decrease shareholders' equity by recognizing Salaries expense for the same amount.
B)Decrease Salaries payable by $8,000 and increase shareholders' equity by recognizing Salaries expense for the same amount.
C)Decrease Cash by $8,000 and decrease shareholders' equity by recognizing Salaries expense for the same amount.
D)No adjustment is necessary because the expense is not recorded until the employees are paid.

Question

Quizplus · Accepted Answer

Since the accounting period ends on Tuesday, there will be two days of payroll that the company has incurred but has not yet paid. Therefore, the company must increase its liability for Salaries payable by $8,000 (2 days x $4,000 per day) and decrease shareholders' equity by recognizing Salaries expense for the same amount. Option A correctly reflects this adjustment. Option B is incorrect because decreasing Salaries payable would be the opposite of what is needed. Option C is incorrect because decreasing cash is not necessary at this point, as the employees have not yet been paid. Option D is incorrect because salaries expense must be recognized in the period it was incurred, regardless of when the actual payment will be made.

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