ABC company recorded wages payable of $15,000 for work performed by employees at the end of April that will be paid in May. Record the April transaction.
1. How would this impact net income? state increase or decrease and amount or NA (example: increase 10,000)
2. How would this impact the cash (bank) account? state increase or decrease and amount or NA (example: decrease 10,000)
3. What type of cash flow activity would it be on the cash flow statement? put OA, IA, FA, or NA (example: OA)
The entry would be:
|Wages expense||$ 15,000|
|To Wages payable||$ 15,000|
Answer 1: Decrease $ 15,000
Recording wages payable will increase the expenses for the company, and so the Net Income will decrease by $ 15,000.
Answer 2: NA
There is no cash outflow in the month of April as the amount will be paid in May. So, recording wages payable does not result in any cash flow.
Answer 3: NA=Not Applicable
As there is no cash flow, the activity will not be reported in Cash Flow Statement.
In case of any doubt, please feel free to comment.
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