During 2017, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2018. What is the amount of the deduction for salary expense?
A) If Silver uses the cash method, $175,000 in 2017 and $0 in 2018.
B) If Silver uses the cash method, $0 in 2017 and $195,000 in 2018.
C) If Silver uses the accrual method, $175,000 in 2017 and $20,000 in 2018.
D) If Silver uses the accrual method, $195,000 in 2017 and $0 in 2018.
E) None of the above is correct.

Question

Quizplus · Accepted Answer

Under the accrual method, expenses are recognized when incurred, not when paid. Therefore, Silver would deduct the total salary expense of $195,000 in 2017, which includes both the paid and unpaid salaries.

During 2017, the First Year of Operations, Silver, Inc