An Adjusting Entry Was Made On Year-End December 31 To Accrue Salary Expense Of $1,200. Assuming The Company Does Not Prepare Reversing Entries, Which Of The Following Entries Would Be Prepared To Record The $3,000 Payment Of Salaries In January Of The Following Year?

An Adjusting Entry Was Made On Year-End December 31 To Accrue Salary Expense Of $1,200. Assuming The Company Does Not Prepare Reversing Entries, Which Of The Following Entries Would Be Prepared To Record The $3,000 Payment Of Salaries In January Of The Following Year? A) Debit Salaries Expense 3,000, Credit Cash 3,000 B) Debit Salaries Payable 3,000, Credit Cash 3,000 C) Debit Salaries Payable 1,200, Credit Cash 1,200 D) Debit Salaries Expense 1,200, Credit Salaries Payable 1,200 E) Debit Salaries Payable 1,200, Debit Salaries Expense 1,800, Credit Cash 3,000
The correct answer of this multiple choice question (mcq) is E, as proved below:

On 31st December, the company is liable to pay salary of $1,200 to its employees as these are earned by the employees by rendering / performing the services to the company / corporation for the current accounting period according to Accrual Basis of Accounting. So, the following adjusting entry is recorded as shown below:

                                  Salaries Expense (SE) a/c $1,200

                                                                           Salaries Payable a/c $1,200

                                                      (Salaries Accrued For The Period)

The SE account is an expense account which is recorded in the Income Statement under administrative expenses and at the end of the current accounting period, it is zero out and transferred to Income Summary Account, which is a temporary account while SP account is a current liability account which is recorded on the balance sheet under the heading of current liabilities on the right side.

As we are assuming here that the Reversing Entries are not prepared, so to close the Salaries Payable (SP) account, we need to debit it, as a liability account has a normal balance on the credit side. When the company, actually, paid salaries to employees of $4,000 on January of the following or the next accounting period, the payment of salaries for cash $3,000 includes paying salaries of $1,800 for cash and $1,200 for accrued salaries. So, the following entry will be made as shown below:

                                                                     SP a/c $1,200

                                                                     SE a/c $1,800

                                                                                 Cash a/c $3,000

                                             (Payment Made For Salaries And Close SP Account)

 So, the liability account i.e., SP is closed and now the company is no longer liable to pay to employees for the services previously performed for the company.

Therefore, the other options i.e., A, B, C and D of this multiple choice question are wrong choices and irrelevant here.

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