Question

If a company recognizes 5,000 of accrued salary expense on December 31, Year 1, what will be the balance in the Accrued Salaries Expense account on January 1, Year 2?

1) On January 1, Year 2 there will be a zero balance in the Accrued Salaries Expense account.
2) On January 1, Year 2 there will be a 5,000 balance in the Accrued Salaries Payable account.
3) The December 31, Year 1 expense recognition will not affect the cash account.
4) All of the answers are correct.

Answer 1

On January 1, Year 2, there will be a zero balance in the Accrued Salaries Expense account and a 5,000 balance in the Accrued Salaries Payable account. The cash account will not be affected by the accrued salary expense recognition. Hence, the correct answer is option 1.

Step-by-step explanation:

If a company recognizes 5,000 of accrued salary expense on December 31, Year 1, the impact on the financial statements would be as follows:

• There will be a 5,000 balance in the Accrued Salaries Payable account on January 1, Year 2.
• The Accrued Salaries Expense account itself will typically be reset to zero as part of the year-end closing process. Expenses are recognized in the period they are incurred, and the balance does not carry over to the next period.
• The recognition of an expense without the actual disbursement of cash means that the cash account will not be affected by the December 31, Year 1 expense recognition.

Therefore, the correct answer to the student's question is that option 4 is correct. On January 1, Year 2, there will be a zero balance in the Accrued Salaries Expense account, a 5,000 balance in the Accrued Salaries Payable account, and the December 31, Year 1 expense recognition will not affect the cash account.