Question

A restaurant accountant has prepared a trial balance for the end of the restaurant's fiscal year. The restaurant uses an accrual basis accounting system. Hourly employees still have not been paid for the last three days of the year. To account for this situation, the accountant should make an adjustment:

1) to record liabilities and expenses not previously recorded.
2) in which previously recorded liabilities become revenue.
3) in which previously recorded assets become expenses.
4) to record assets and revenues not previously provided.

Answer 1

The restaurant accountant should adjust to record the unpaid wages as both a liability and an expense, aligning with the principles of accrual-based accounting.

Step-by-step explanation:

The restaurant accountant should make an adjustment to record liabilities and expenses not previously recorded. Since the wages for the hourly employees for the last three days have not been paid, this amount needs to be recognized as a liability (wages payable) and an expense (wage expense) for the fiscal year in question in accordance with the accrual basis of accounting. This ensures that expenses are recorded when they are incurred, not when the cash is paid, which aligns with the revenue recognition principle of matching revenues with related expenses.