Question

Assume that weekly payroll of Woods Camping Supplies is $300. Dec. 31 falls on Tuesday, and Woods will pay its employees on Friday for the full week. What adjusting entry will Woods make on Tuesday, Dec 31? (5 days is a full week)

a. Debit: Salaries Expense $120, Credit: Salaries Payable $120
b. Debit: Salaries Payable $300, Credit: Salaries Expense $300
c. Debit: Salaries Expense $120, Credit: Cash $120
d. No adjustment needed

Answer 1

The correct adjusting entry on Dec 31 for Woods Camping Supplies is to debit Salaries Expense for $120 and credit Salaries Payable for $120 to reflect two days of salaries incurred but not yet paid.

Step-by-step explanation:

The correct adjusting entry that Woods should make on Tuesday, Dec 31, for the weekly payroll is: Debit: Salaries Expense $120, Credit: Salaries Payable $120

Given that the company has a five-day workweek and the total weekly payroll is $300, each workday accounts for $60 of payroll ($300 ÷ 5 days = $60 per day). Since Dec 31 falls on a Tuesday, two days of the workweek have passed (Monday and Tuesday), necessitating an adjustment for these two days before the pay period ends. The adjustment records the expense incurred but not yet paid for these two days, which totals $120 ($60 per day × 2 days).

Therefore, the company should recognize the accrued salaries expense for two days:

• 
  
• Debit Salaries Expense for $120 (to recognize the expense)
• 
  
• Credit Salaries Payable for $120 (to acknowledge the liability)

This adjusting entry ensures that Woods' financial statements reflect the expenses that have been incurred during the period, even though they have not yet been paid out in cash, maintaining the matching principle of accounting.