A company pays each of its two office employees each Friday at the rate of $100 per day each for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

Question

BlackTom AI · Accepted Answer

Accrual accounting requires recognizing expenses when incurred, so salaries earned but unpaid at month‑end must be recorded as an expense and a liability.

1) Relevant concepts
- Accrual basis: expenses are recorded when incurred, not when paid.
- Salaries earned by employees but unpaid at the balance sheet date are accrued as Salaries Expense (debit) and Salaries Payable (credit).
- Calculate the amount based on days worked and pay rate.

2) Step‑by‑step reasoning
- Each employee is paid $100 per day.
- The five‑day week begins Monday; the month ends on Tuesday, and both employees worked Monday and Tuesday of that week.
- Those two days (Monday and Tuesday) are earned but unpaid at month‑end, so they must be accrued.

3) Calculations (all intermediate steps)
- Pay per employee for 2 days = $100/day × 2 days = $200.
- Two employees total = $200 × 2 = $400.

4) Why this is the correct journal entry
- The business incurred $400 of salary expense during the month that it has not yet paid. Under accrual accounting, record Salaries Expense (debit) to recognize the cost and Salaries Payable (credit) to recognize the liability to be paid on Friday.
- The appropriate entry: debit Salaries Expense $400; credit Salaries Payable $400.

5) Why other possible entries would be incorrect
- Debiting Salaries Payable and crediting Cash would be wrong because no cash has been paid yet.
- Debiting Salaries Expense and crediting Cash would treat the expense as paid, which is not true at month‑end.
- Crediting Revenue or other accounts would be unrelated and incorrect for accrued payroll.

6) Conclusion
The correct month‑end adjusting entry is: debit salaries expense $400 and credit salaries payable $400, which matches the provided answer.

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