On December 31, 2013, Farrell Co. owed $1,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, 2013, what will be the effect of the accrual on the following items for Farrell? $$\begin{array} { | l | l | l | }
\hline &{ \text { Net Income } } & { \begin{array} { c }
\text { Cash Flow from } \
\text { Operating Activities }
\end{array} } \
\hline \text { a. } & \text { No effect } & \text { No effect } \
\hline \text { b. } & \text { Decrease } & \text { No effect } \
\hline \text { c. } & \text { Increase } & \text { Decrease } \
\hline \text { d. } & \text { No effect } & \text { Decrease } \
\hline
\end{array}$$

Question

On December 31, 2013, Farrell Co. owed $1,500 in salaries to employees who had worked during December but would be paid in January. If the year-end adjustment is properly recorded on December 31, 2013, what will be the effect of the accrual on the following items for Farrell? $$\begin{array} { | l | l | l | } 
\hline &{ \text { Net Income } } & { \begin{array} { c } 
\text { Cash Flow from } \
\text { Operating Activities }
\end{array} } \
\hline \text { a. } & \text { No effect } & \text { No effect } \
\hline \text { b. } & \text { Decrease } & \text { No effect } \
\hline \text { c. } & \text { Increase } & \text { Decrease } \
\hline \text { d. } & \text { No effect } & \text { Decrease } \
\hline
\end{array}$$

Quizplus · Accepted Answer

The accrual of salaries decreases net income because it records an expense. However, it does not affect cash flow from operating activities until the salaries are actually paid.

On December 31, 2013, Farrell Co A) Option a B) Option B C) Option C D)

On December 31, 2013, Farrell Co A) Option a
B) Option B
C) Option C
D)