Question

A company owes employee salaries of 5000 on December 31 for work completed in the current year, but the company doesn't plan to pay those salaries until the following year. What adjusting entry, if any, is needed on December 317?

A. Debt Salaries Payable for $5,000, Credit Salaries Expense for $5,000.
B. No adjusting entry is needed.
C. Debit Salaries Payable for $5,000 Credit Cash for 55.000
D. Debit Salaries Expense for $5,000; Credit Solaris Payable for $5,000.

Answer 1

The adjusting entry needed if a company owes salaries for work completed in the current year but plans to pay them in the following year is a debit to Salaries Expense and a credit to Salaries Payable for the amount owed, ensuring adherence to accrual accounting principles.

Step-by-step explanation:

If a company owes salaries for work completed in the current fiscal year but does not plan to pay those salaries until the following fiscal year, an adjusting entry is necessary to accurately reflect this expense in the company's financial records. According to the accrual basis of accounting, expenses should be recognized in the period they are incurred, regardless of when the payment is made.

The adjusting entry on December 31 would therefore be:

• Debit Salaries Expense for $5,000
• Credit Salaries Payable for $5,000

This entry ensures that the expense is appropriately recorded in the same year the work was performed, matching revenues with expenses in the period in which they occur. This is a fundamental principle of accrual accounting and ensures that financial statements are accurate and reflect the true financial position of the company.