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
Multiple Choice
Which journal entry correctly records an accrued expense at period-end when \$1,200 of salaries have been earned by employees but will be paid next period?
A
Debit Prepaid Salaries \$1,200; Credit Salaries Expense \$1,200.
B
Debit Salaries Payable \$1,200; Credit Salaries Expense \$1,200.
C
Debit Salaries Expense \$1,200; Credit Salaries Payable \$1,200.
D
Debit Salaries Expense \$1,200; Credit Cash \$1,200.
Verified step by step guidance1
Step 1: Understand what an accrued expense is. An accrued expense represents an expense that has been incurred but not yet paid by the end of the accounting period. In this case, employees have earned \$1,200 in salaries, but payment will occur in the next period.
Step 2: Identify the accounts involved. Since the expense has been incurred but not paid, you need to recognize the expense and also record a liability showing the amount owed. The expense account is 'Salaries Expense' and the liability account is 'Salaries Payable'.
Step 3: Determine the correct journal entry format. To record an accrued expense, you debit the expense account to recognize the cost incurred and credit a payable account to show the obligation to pay in the future.
Step 4: Write the journal entry. Debit 'Salaries Expense' for \$1,200 to record the expense, and credit 'Salaries Payable' for \$1,200 to record the liability.
Step 5: Understand why other options are incorrect. For example, debiting 'Prepaid Salaries' is wrong because prepaid accounts represent payments made in advance, not expenses incurred but unpaid. Crediting 'Cash' is incorrect because no cash has been paid yet.
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