Chapter 3, Problem 27GI

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Chapter
Section

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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# Give an example of an adjusting entry and a reversing entry for salaries payable, and the later entry to pay the salaries.

To determine

Provide an example of an adjusting entry and a reversing entry for salaries payable, and the later entry to pay the salaries.

Explanation

Adjusting entries: Adjusting entries are those entries which are recorded at the end of the year, to update the income statement accounts (revenue and expenses) and balance sheet accounts (assets, liabilities, and stockholders’ equity) to maintain the records according to accrual basis principle.

Reversing entries: Reversing entries are made at the beginning of the accounting period when the accountant needs to cancel any entry made in the previous accounting period. It is done in order to eliminate any errors that might have occurred in the calculation of the revenue or expenses and henceforth increase the efficiency of the financial statements for an improved decision making.

Provide an example of an adjusting entry and a reversing entry for salaries payable, and the later entry to pay the salaries is as follows:

Assume Company A pays employee’s salaries every Friday (5-day work week), the weekly payroll amount is $6,000 and December 31 falls on Tuesday. The adjusting, reversing, and payment entries are, Adjusting entry:  Date Account Title & Explanation Debit ($) Credit($) December 31 Salaries expense ($6,000×25) 2,400 Salaries payable 2,400 (To record the adjusting entry of salaries expense accrued at the end of the accounting year)

Table (1)

• Salaries expense is component of shareholders’ equity, and it decreases the value of shareholders equity

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