When a ﬁrm has wages earned but not yet paid at the end of a ﬁnancial reporting period, what must it do to recognize the liabilities and expenses?
A)It must credit the asset accounts for the appropriate payroll amounts.
B)It must create an adjusting entry to recognize the payroll accrual.
C)It must pay its employees for the wages earned as of that date.
D)It must wait until the next ﬁnancial period to record the payroll data.

Question

Quizplus · Accepted Answer

The firm must create an adjusting entry to recognize the payroll accrual. This involves debiting the wage expense account to recognize the expense incurred and crediting a liability account (such as wages payable or accrued wages) to recognize the obligation to pay the employees in the future. This ensures that the financial statements accurately reflect the company's financial position and performance for the period.

When a ﬁRm Has Wages Earned but Not Yet Paid