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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

List two types of transactions that would receive differentaccountingtreatments using (a) strict cash basis accounting, and (b) a modified cash basis.

Do the following events represent business transactions?

Explain your answer in each case

  1. A computer is purchased on account.
  2. A customer returns merchandise and is given credit on account.
  3. A prospective employee is interviewed
  4. The owner of the business withdraws cash from the business for personal use.
  5. Merchandise is ordered for delivery next month.

(LO2,3) Dresser Company鈥檚 weekly payroll, paid on Fridays, totals \(8,000. Employees work 5-days week. Prepare Dresser鈥檚 adjusting entry on Wednesday, December 31, and the journal entry to record the \)8,000 cash payment on Friday, January 2.

A review of the ledger of Baylor Company at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries.

  1. Salaries and Wages Payable \(0. There are eight employees. Salaries and wages are paid every Friday for the current week. Five employees receive \)700 each per week, and three employees earn \(600 each per week. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.

  2. Unearned Rent Revenue \)429,000. The company began subleasing office space in its new building on November 1. Each tenant is required to make a \(5,000 security deposit that is not refundable until occupancy is terminated. At December 31, the company had the following rental contracts that are paid in full for the entire term of the lease.

    Date

    Term (in months)

    Monthly Rent

    Number of Leases

    Nov. 1

    6

    \)6,000

    5

    Dec. 1

    6

    \(8,500

    4

  3. Prepaid Advertising \)13,200. This balance consists of payments on two advertising contracts. The contracts provide for monthly advertising in two trade magazines. The terms of the contracts are as shown below.

    Contract

    Due date

    Amount

    Number of magazine issue

    A650

    May 1

    \(6,000

    12

    B974

    Oct. 1

    7,200

    24

    The first advertisement runs in the month in which the contract is signed

  4. Notes Payable \)60,000. This balance consists of a note for one year at an annual interest rate of 12%, dated June 1.

    Instructions

    Prepare the adjusting entries at December 31, 2017. (Show all computations).

When converting to IFRS, a company must:

(a) recast previously issued financial statements inaccordance with IFRS.

(b) use GAAP in the reporting period but subsequentlyuse IFRS.

(c) prepare at least three years of comparative statements.

(d) use GAAP in the transition year but IFRS in thereporting year
See all solutions

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