Assume that the City of Juneau maintains its books and records to facilitate the preparation of its government-wide financial statements. The city pays its employees bi-weekly on Friday. The fiscal year ended on Wednesday, June 30. Employees had been paid on Friday, June 25. The employees paid from the general fund had earned $90,000 on Monday, Tuesday, and Wednesday (June 28, 29, and 30). They will earn $60,000 on Thursday and Friday (July 1 and 2). What entry, if any, should be made on the government-wide financial statements?
A) Debit Expenditures $90,000; credit Accrued wages and salary $90,000.
B) Debit Expenses $90,000; credit Accrued wages and salary $90,000.
C) Debit Expenditures $90,000; credit Encumbrances $90,000.
D) Debit Expenses $90,000; credit Encumbrances $90,000.

Question

Quizplus · Accepted Answer

Government-wide financial statements use the accrual basis of accounting, recognizing expenses when they are incurred, not when paid. Therefore, the city should recognize the wages earned by employees for the last three days of the fiscal year ($90,000) as an expense and a corresponding liability (accrued wages and salary).

Assume That the City of Juneau Maintains Its Books and Records