Multiple Choice
When actual manufacturing overhead costs are incurred, which of the following journal entries is most appropriate to record the transaction?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Expenses
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Wait-2-Pay, Inc. has an employee that works every day of the year for $100 per day. W2P pays its employee once per month on the 25th of the month. The company is preparing its December 31 financial statements. The entry to adjust for accrued salary expense would include:
A
Debit Salary Expense $600; Credit Prepaid Salaries $600
B
Credit Salary Expense $600; Debit Prepaid Salaries $600
C
Debit Salary Expense $600; Credit Accrued Salaries Expense $600
D
Credit Salary Expense $600; Debit Accrued Salaries Expense $600
Verified step by step guidance1
Identify the period for which the salary expense needs to be accrued. Since the employee is paid on the 25th of each month, the salary from December 26th to December 31st needs to be accrued.
Calculate the number of days for which the salary needs to be accrued. In this case, it is from December 26th to December 31st, which is 6 days.
Determine the daily salary rate, which is given as $100 per day.
Calculate the total salary expense for the period by multiplying the number of days (6) by the daily rate ($100), resulting in $600.
Record the adjusting journal entry to recognize the accrued salary expense: Debit Salary Expense $600; Credit Accrued Salaries Expense $600. This entry reflects the expense incurred but not yet paid by December 31st.
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