Final answer:
The correct entry to record the payment of accrued salaries includes a debit to Salaries Payable and a credit to Cash, which settles the liability and reflects the cash outflow.
Step-by-step explanation:
If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include a debit to Salaries Payable and a credit to Cash. This entry is necessary to clear the liability that was created when the salaries were initially accrued. The company was recognizing the expense in the period the employees earned it, which is in accordance with accrual accounting principles, by recording the liability to Salaries Payable. When the payment is actually made, the liability needs to be settled, which is done by debiting Salaries Payable, resulting in a decrease in the liability account. Simultaneously, the credit to Cash reflects the outflow of cash from the company's resources.
The correct journal entry on January 5 to record the payment of these wages would be:
- Debit Salaries Payable
- Credit Cash
This entry effectively zeroes out the Salaries Payable account and reduces the Cash account by the amount of the payment. There is no need to involve a 'Prepaid Salaries' account, as salaries are not an asset but an expense, and once they are paid, they do not prepay any future expense. Moreover, Salaries Expense is not credited because the expense was already recognized when the salary was accrued, so there is no need to record it again at the time of payment.