Small Corporation uses a Wages Clearing Account for its payroll disbursements.At the end of February,a reasonably large debit balance remained in this account.What is the most likely reason?
A)More labour cost had been assigned to the expense accounts than had been paid.
B)Some labour cost had not been properly classified in the expense accounts.
C)Some employees had not yet cashed their cheques.
D)Not enough cash had been transferred to the bank account.

Question

Quizplus · Accepted Answer

A debit balance in the Wages Clearing Account indicates that more labour costs have been paid than assigned to the expense accounts. However, if the balance remains large at the end of the month, it's likely that some labour costs have not been properly classified in the expense accounts. This could be due to errors or omissions in recording transactions, such as failing to properly allocate overtime or bonuses. Alternatively, if some employees have not cashed their cheques, this would not affect the balance of the Wages Clearing Account, as the cheques would still be outstanding. Finally, if not enough cash had been transferred to the bank account, this would result in a negative balance in the Wages Clearing Account, rather than a large debit balance.

Small Corporation Uses a Wages Clearing Account for Its Payroll