The employees of Dew Drop Inn get paid every Friday for a 5-day workweek (Monday through Friday).The total payroll is $5,000 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)Increase Salaries payable by $15,000 and increase shareholders' equity by recognizing Salaries expense for the same amount.
B)Increase Salaries payable by $15,000 and decrease shareholders' equity by recognizing Salaries expense for the same amount.
C)Decrease Cash by $15,000 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 employees are paid on Friday, they worked for only three days out of the five-day workweek. Therefore, only $3,000 ($5,000 per day x 3 days) of the total payroll is due at the end of the accounting period. The adjustment that must be made is to increase Salaries payable by $15,000 ($5,000 per day x 3 days x 1 week) to reflect the amount owed to the employees for the remaining two days of the workweek. At the same time, Shareholders' equity must be decreased by recognizing Salaries expense for the same amount ($15,000). This adjustment ensures that the financial statements reflect the accurate amount of liabilities owed to employees and the corresponding expense recognized for the work performed during the accounting period.

The Employees of Dew Drop Inn Get Paid Every Friday