Question

Case 2. Suppose you are the accountant of ABC International. Due to complete lock down and the threat of COVID 19 the employees have done the works their homes, but they have not yet been paid for the month of April 2019. As per the discussion, they agreed the salary to be paid in January 2021. The amount of the unpaid salaries totals OMR 31,000. How would you deal with this amount in financial statements of 2020? Answer the following Questions (1 mark each) a. Name the adjusting entry related to this transaction and pass entry to record the transaction? b. How will you define this adjusting entry in a single sentence? c. Which accounting concept is most applicable to this adjusting entry? d. How this amount is to be shown in balance sheet/ Income statement? e. How it will affect the financial statements if this entry is not passed?

Answer 1

A. Salary a/c ...Dr. 31,000

To Salary payable A/c 31,000

(Being salary for the month of March will be paid in Jan 2021)

B. Due to covid-19, salary for the month of march-2020 shall be paid in January 2021)

C. Accrual concept- as the expense has been made there for it is being recognised.

D. Salary payable account will be shown in current liabilities amounting OMR 31,000

AND salary account will be shown in income and expense statement debit side. As it is an expense amounting OMR 31,000

E. If the entry is not passed then it will not show the expense which has been incurred but not accounted or recognised in the financial statements. And will show the wrong image of the financial statements