Question

On December 31, Frank Voris Company correctly made (SO 7) an adjusting entry to recognize $\mathrm{\$}2,000$ of accrued salaries payable. On January 8 of the next year, total salaries of $\mathrm{\$}3,400$ were paid. Assuming the correct reversing entry was made on January 1, the entry on January 8 will result in a credit to Cash $\mathrm{\$}3,400$ and the following debit(s): a. Salaries and Wages Payable $\mathrm{\$}1,400$, and Salaries and Wages Expense $\mathrm{\$}2,000$. b. Salaries and Wages Payable $\mathrm{\$}2,000$ and Salaries and Wages Expense $1,400. c. Salaries and Wages Expense $\mathrm{\$}3,400$. d. Salaries and Wages Payable $\mathrm{\$}3,400$.

Short answer

c. Salaries and Wages Expense $\mathrm{\$}3,400$.

Step-by-step solution

Understand the Problem

The problem involves adjusting and reversing entries. On December 31, an adjusting entry was made for accrued salaries of $(2,000$. On January 8, $)3,400$ was paid, and we need to find out the correct debits assuming a reversing entry was made on January 1.

Analyze the Adjusting Entry

The adjusting entry on December 31 involves a debit to "Salaries and Wages Expense" and a credit to "Salaries and Wages Payable" for $\mathrm{\$}2,000$. This recognizes the expense incurred but not yet paid.

Analyze the Reversing Entry

A reversing entry on January 1 would be a debit to "Salaries and Wages Payable" and a credit to "Salaries and Wages Expense" for $\mathrm{\$}2,000$. This nullifies the previous adjustment, making January's actual salary processing simpler.

Determine January 8 Entry

On January 8, Frank Voris Company pays salaries totaling $(3,400$. Following the reversing entry, the "Salaries and Wages Expense" account must absorb the whole $)3,400$, without affecting "Salaries and Wages Payable," which is nullified by the reversal.

Select the Correct Answer

Since the reversing entry eliminated the December accrued $(2,000$ from "Salaries and Wages Payable," the whole payment $)3,400$ is debited to "Salaries and Wages Expense." Therefore, the answer is c. Salaries and Wages Expense $\mathrm{\$}3,400$.

Key concepts

Accrued Salaries Payable

Accrued salaries payable are amounts that a business owes to its employees for work performed but not yet paid by the date the accounts are prepared. At the end of the accounting period, companies often record this as an adjusting entry. This entry acknowledges employee wages that are earned but not yet disbursed.

For example, consider an organization that owes its employees $2,000, which will be paid in the next accounting period. In this situation, the company's journal entry on December 31 would involve:

• Debiting "Salaries and Wages Expense" for $2,000, recognizing the cost of employee labor.
• Crediting "Accrued Salaries Payable" for $2,000, establishing a liability on their balance sheet.

This process ensures that the company accurately reflects its financial obligations and aligns with the accrual accounting principle, where expenses are recorded when they are incurred rather than when they are paid.

Reversing Entries

Reversing entries are optional bookkeeping techniques used to simplify subsequent accounting activities. Such entries reverse the position of previous adjusting entries when the next accounting period begins, making it easier to handle payments without confusion.

When Frank Voris Company made an adjusting entry on December 31 for accrued salaries payable, a reversing entry on January 1 of the following year would involve:

• Debiting "Salaries and Wages Payable" for the previously accrued amount of $2,000.
• Crediting "Salaries and Wages Expense" for $2,000.

This step effectively counteracts the original entry, simplifying the company's payroll transaction for future periods. It helps clear the slate so that when the actual expense is incurred, there is no carryover from past periods that might cloud financial results.
Reversing entries are advantageous as they help maintain clarity in the accounts, ensuring that records accurately show only current activities.

Salaries and Wages Expense

Salaries and wages expense is the total amount paid to employees for their labor during a specific accounting period. This figure is crucial for businesses as it represents a significant portion of their operating expenses.

On January 8, after setting a reversing entry on January 1, all associated payment of salaries for that period will be accounted for directly in this expense account, with no impact from prior accrual adjustments. This means:

• A total amount of $3,400, representing the entire payroll for that date, directly debits "Salaries and Wages Expense".

This approach ensures a smooth and straightforward record of the wages, maintaining an accurate assessment of expenses.
The integrity of the 'Salaries and Wages Expense' remains up-to-date and clear of any overlaps with past reports, providing unclouded insight into the current financial period's costs.