Final answer:
To record unpaid salaries, a debit of $1,500 is made to Salary Expense, and a credit of the same amount goes to Salaries Payable. This ensures expenses match the revenues earned. The firm's accounting profit from the scenario is $50,000.
Step-by-step explanation:
The student's question pertains to making an adjusting entry for unpaid salaries at the end of an accounting year. Z Company owes $1,500 in salaries that have not been paid or recorded. The correct adjusting entry to reflect this at the end of the year would be a debit to Salary Expense and a credit to Salaries Payable.
The absence of this adjustment would lead to an understatement of expenses and liabilities, and an overstatement of net income and equity. Conversely, recording this adjusting entry properly aligns with the accrual basis of accounting, ensuring that expenses are matched with the revenues they help generate.
Example:
Debit Salary Expense: $1,500
Credit Salaries Payable: $1,500
This adjusting entry increases expenses and increases liabilities, which reflects the company's obligation to pay the salaries that have been earned by employees but have not yet been paid out. It is important to note that the amount of the expense should be included in the net income calculation for the period in which the salaries were earned, even though the payment will be made in the future.
To address the provided reference information:
For a firm with sales revenue of $1 million and expenses of $600,000 on labor, $150,000 on capital, and $200,000 on materials, the accounting profit would be calculated as follows:
Calculation:
Accounting Profit = Total Revenues - Explicit Costs
Accounting Profit = $1,000,000 - ($600,000 + $150,000 + $200,000)
Accounting Profit = $1,000,000 - $950,000
Accounting Profit = $50,000
The firm's accounting profit for the year would be $50,000.