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 pay its employees for the wages earned as of that date.
C)It must wait until the next financial period to record the payroll data.
D)It must create an adjusting entry to recognize the payroll accrual.

Question

Quizplus · Accepted Answer

The firm must create an adjusting entry to recognize the payroll accrual for the wages earned but not yet paid. This will allow the firm to recognize the liabilities (payroll payable) and expenses (wages expense) that are associated with the payroll accrual for the current reporting period. Option A is incorrect because the asset accounts should not be credited for payroll amounts that have not yet been paid. Option B is not always possible or necessary, depending on the payment terms and timing. Option C is incorrect because the payroll data must be recorded in the current reporting period.

When a Firm Has Wages Earned but Not Yet Paid