Record the payment of accrued and current salaries

Record the payment of accrued and current salaries.Salaries Expense-7,350Salaries Payable-4,900>Cash-12,250

The Correct Answer and Explanation is :

Journal Entry for Payment of Accrued and Current Salaries:

Salaries Payable          4,900  
Salaries Expense          7,350  
     Cash                                12,250  

Explanation:

This journal entry records the payment of both accrued and current salaries. Here’s the breakdown:

1. Salaries Payable (Credit -> Debit):

• The Salaries Payable account of $4,900 represents the accrued salaries that have been previously recorded as a liability. When salaries are accrued but not yet paid, they are credited (increased) as a liability. Now that the company is paying these salaries, the Salaries Payable account is debited (reduced), because the liability is being settled.

1. Salaries Expense (New Expense Entry):

• The Salaries Expense account is debited by $7,350, representing the current salaries incurred during the current period. This account tracks the company’s expense for salaries and wages, which reduces the company’s net income. Expenses are always debited in accounting to reflect a decrease in equity and an increase in costs.

1. Cash (Credit):

• The Cash account is credited by $12,250, which reflects the total cash outflow related to the salary payments. This decreases the company’s cash balance. Cash is an asset, and when it’s used (or decreases), it’s credited in accounting records.

Key Points:

• Accrued Salaries: Salaries that are incurred but not yet paid, recognized as a liability in the balance sheet.
• Current Salaries: Salaries earned and paid within the same period, recorded as an expense.
• Matching Principle: The journal entry reflects the matching principle, where expenses (salaries) are recognized in the period they are incurred, whether or not they’ve been paid yet.
• Effect on Financial Statements: The reduction in cash and recognition of expenses will lower both the company’s net income and cash balance, while the reduction in the payable account decreases the liabilities.

This ensures that the financial statements accurately reflect the company’s financial position after the transaction.