A business pays weekly salaries on Friday of $25,000 for a five-day week ending on Friday. Assuming the fiscal period ends on a Wednesday, the adjusting entry for accrued salaries would involve a:
A) debit to salary payable for $10,000.
B) debit to salary expense for $15,000.
C) credit to salary payable for $10,000.
D) credit to salary expense for $15,000.
The correct answer and explanation is:
The correct answer is C) credit to salary payable for $10,000.
Here’s an explanation:
A business pays $25,000 in salaries for a five-day work week, which ends on a Friday. This means that the daily salary expense is calculated by dividing the total salary by the number of days in the week:
$25,000 ÷ 5 days = $5,000 per day.
The fiscal period in this scenario ends on a Wednesday, which means the business needs to account for the salaries that have been earned but not yet paid for the days Thursday and Friday.
For the three days that have already passed (Monday through Wednesday), the employees have earned $5,000 per day, so the salary expense for these three days is:
3 days × $5,000 = $15,000.
However, since the fiscal period ends on Wednesday, the business needs to accrue the expense for Thursday and Friday as well, which would also total:
2 days × $5,000 = $10,000.
The adjusting entry for this accrued salary would include:
- Debit Salary Expense for $15,000 to reflect the salary cost incurred from Monday to Wednesday.
- Credit Salary Payable for $10,000 to reflect the amount owed for the two remaining days (Thursday and Friday), which will be paid in the next fiscal period.
The correct adjusting entry here involves a credit to salary payable for $10,000 because the business is recognizing the liability for salaries that are earned but will be paid in the next fiscal period.
Thus, the correct choice is C) credit to salary payable for $10,000.