Question

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,500. Assuming the company does not prepare reversing entries. What entries would be prepared to record the $3,600 payment of salaries in January of the following year?

Answer 1

For the original question, when making the January salary payment after an end-of-year accrual, the company records a debit to Salary Expense and credits Cash for the payment, while reversing the accrual with a debit to Salary Payable and a credit to Salary Expense. The firm's accounting profit example shows a profit of $50,000 after subtracting total expenses from sales revenue.

Step-by-step explanation:

The student asked about the proper journal entry to record the payment of salaries after an accrued salary expense was recognized at the year-end. Considering that no reversing entries are made, the following entries would occur:

To record the actual payment of salaries in January, the company would debit the Salary Expense for the total amount paid, which is $3,600, and credit Cash for $3,600 to reflect the payment.

The company also needs to relieve the accrued liability established at the year-end. They would debit the Salary Payable (or Accrued Salaries) account for $1,500, which was the accrued amount, and credit the Salary Expense to reverse the prior accrual. This effectively reduces the Salary Expense recognized in January by $1,500.

Adjusting for the prior accrued expense ensures that the company does not double-count the expense and only the additional $2,100 ($3,600 - $1,500) is recognized as an expense in the new year.

To answer the self-check question, the firm's accounting profit is calculated by subtracting the total expenses from the sales revenue. The firm spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, for a total expense of $950,000. Subtracting this from the sales revenue of $1 million, the accounting profit is $50,000.

Answer 2

Answer and Explanation:

The Journal entries are shown below:-

1. Salary Expense $1,500

To Salary Payable $1,500

(Being salary expense is recorded)

Here we debited the salary expenses as it increased the expenses and we credited the salary payable as it also increased the liabilities

2. Salary Expense Dr, $2,100

Salary Payable Dr, $1,500

To Cash $3,600

(Being cash paid is recorded)

Here we debited the salary expenses and salary payable as it increased the expenses and decreased the liabilities and we credited cash as it reduced the assets