Question

Analyzing and Computing Accrued Wages Liability and Expense

Demski Company pays its employees on the 1st and 15th of each month. It is March 31 and Demski is preparing financial statements for this quarter.Its employees have earned $96,000 since the 15th of March and have not yet been paid. How will Demski's balance sheet and income statement reflect the accrual of wages on March 31? What balance sheet and income statement accounts would be incorrectly reported if Demski failed to make this accrual (for each account indicate whether it would be overstated or understated)?

Answer 1

Solution:-

The adjusting entry to be passed for the unpaid wages on March 31:

Salaries & wages ...................Dr. $96000

Salaries & Wages payable..................... Cr. $96000

The salaries and wages expense will be charged against profit in the income statement and Current Liabilities will on the liability side of the balance sheet be increased whereas.the Stockholders' equity will be decreased by the same amount

The income statement will be overstated reflecting an overstated net income for the year ending on March 31. Likewise, the Liability and equity will be understated and overstated by the same amount.