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Chapter 3: Q16Q (page 128)

When salaries and wages expense for the year is computed, why are beginning accrued salaries and wages subtracted from, and ending accrued salaries and wages added to, salaries and wages paid during the year?

Short Answer

Expert verified

Salaries and wages paid during the year will consist of the disbursement of any wages that are accountable to the prior year, but were yet to be disbursed at the end of the prior year. This amount is regarded as an expense of the prior year, but not of the current year and, therefore, should be deducted while ascertaining salaries and wages expenses for the current year.

Step by step solution

01

Meaning of Salary and Wages Expense

Salary expense is an expense that is constant in nature and is dependent on the contract of the worker鈥檚 salary.

02

Computation of salary and wage expenses

According to the accrual method of accounting, wages and expenses are listed when the work was done as opposed to when the work is disbursed. However, under the cash basis of accounting, wage expenses are listed only when the work is disbursed.

03

Subtraction of beginning accrued salaries and wages and addition of ending accrued salaries and wages

The accrual amount at the end of the previous year. It is treated as an expense of the previous year and not of the present year, and therefore should be deducted in ascertaining salaries and wages expenses. Correspondingly, salaries and wages paid during the current year will not comprise any salaries, and wages account for the working hours during the existing year, but are not usually disbursed until the next year. Thus, these should be summed while ascertaining salaries and wageexpenses.

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Most popular questions from this chapter

The trial balance of Bellemy Fashion Center contained the following accounts at November 30, the end of the company鈥檚 fiscal year.

BELLEMY FASHION CENTER

TRIAL BALANCE

NOVEMBER 30, 2017

Debit

Credit

Cash

\( 28,700

Accounts Receivable

33,700

Inventory

45,000

Supplies

5,500

Equipment

133,000

Accumulated Depreciation鈥擡quipment

\) 24,000

Notes Payable

51,000

Accounts Payable

48,500

Common Stock

90,000

Retained Earnings

8,000

Sales Revenue

757,200

Sales Returns and Allowances

4,200

Cost of Goods Sold

495,400

Salaries and Wages Expense

140,000

Advertising Expense

26,400

Utilities Expenses

14,000

Maintenance and Repairs Expense

12,100

Delivery Expense

16,700

Rent Expense

24,000

\(978,700

\)978,700

Adjustment data:

1. Supplies on hand total \(1,500.

2. Depreciation is \)15,000 on the equipment.

3. Interest of \(11,000 is accrued on notes payable at November 30.

Other data:

1. Salaries expense is 70% selling and 30% administrative.

2. Rent expense and utilities expenses are 80% selling and 20% administrative.

3. Notes payable worth \)30,000 are due for payment next year.

4. Maintenance and repairs expense is 100% administrative.

Instructions

(a) Journalize the adjusting entries.

(b) Prepare an adjusted trial balance.

(c) Prepare a multiple-step income statement and retained earnings statement for the year and a classified balance sheet as of November 30, 2017.

(d) Journalize the closing entries.

(e) Prepare a post-closing trial balance.

Give an example of a transaction that result in:

  1. A decrease in asset and a decrease in a liability.
  2. A decrease in one asset and an increase in another asset.
  3. A decrease in one liability and an increase in another liability.

Employees are paid every Saturday for the preceding work week. If a balance sheet is prepared on Wednesday, December 31, what does the amount of wages earned during the first three days of the week (12/29, 12/30, 12/31) represent? Explain.

EXCEL (Adjusting Entries) The ledger of Duggan Rental Agency on March 31 of the current year includes the following selected accounts before adjusting entries have been prepared.

Debit Credit

Prepaid Insurance \(3,600

Supplies \)2,800

Equipment \(25,000

Accumulated Depreciation- Equipment \)8,400

Notes Payable \(20,000

Unearned Rent Revenue \)9,300

Rent Revenue \(60,000

Interest Expenses -0-

Salaries and Wages Expenses \)14,000

An analysis of accounts shows the following.

  1. The equipment depreciates \(250 per month.

  2. One-third of the unearned rent was recognized as revenue during the quarter.

  3. Interest of \)500 is accrued on the notes payable.

  4. Supplies on hand total \(850

  5. Insurance expires at the rate of \)300 per month.

Instructions

Prepare the adjusting entries at March 31, assuming that adjusting entries are made quarterly. Additional accounts are Depreciation Expenses, Insurance Expenses, Interest Payable, and Supplies expenses. (Omit Explanations)

E3-15 (L06) (Missing Amounts) Presented below is financial information for two different companies.

Alatorre Company Eduardo Company
Sales revenue \(90,000 (d)
Sales returns and allowances (a) \)5,000
Net sales 81,000 95,000
Cost of goods sold 56,000 (e)
Gross profit (b) 38,000
Operating expenses 15,000 23,000
Net income (c) 15,000

Instructions

Compute the missing amounts.
See all solutions

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