Assume that an employee works and earns $100, but has not yet been paid when the accounting period ends. Under accrual accounting, the books should reflect
A) Nothing, since the employee has not yet been paid
B) A liability of $100 and a revenue of $100
C) An asset of $100 and an expense of $100
D) A liability of $100 and an expense of $100

Question

Quizplus · Accepted Answer

Under accrual accounting, expenses must be recorded when they are incurred, regardless of when payment is made. In this case, the employee has already worked and earned the $100, so it is considered an expense. However, since payment has not yet been made, it is also a liability that the company owes to the employee. Therefore, the correct answer is a liability of $100 and an expense of $100.

Assume That an Employee Works and Earns $100, but Has