Which of the following would not require the company to record an accrual on the balance sheet?
A) The company owes $43,000 in wages to its employees for the previous two weeks.
B) Interest will be paid when a note payable matures in the following accounting period.
C) Management believes a lawsuit against the company is meritless because they have never had a single complaint about dangerous side effects of their drug in two years.
D) The company knows that they will be fined for pollution as a result of their manufacturing process and can estimate the amount of the obligation.
E) None of the above

Question

Quizplus · Accepted Answer

Accruals are recorded for expenses that have been incurred but not yet paid, or revenues that have been earned but not yet received. In the case of C, management's belief that a lawsuit is meritless does not represent an incurred expense or an obligation that needs to be recorded as an accrual. The other options represent situations where an obligation exists (wages, interest on a note payable, and a fine for pollution) that would require recording an accrual.

Which of the Following Would Not Require the Company to Record