In: Accounting
imagine if you will, that Ryder Corp has at the end of 2018 an amount of $62,000 in its accrued payroll (aka wages payable) account. During 2019, no changes were made to the accrued payroll account so that it is still $62,000. Whenever, payroll was accounted for in 2019, the payroll department simply debited the payroll expense and credited cash (no journal entry to accrued payroll). No one was concerned about the monthly financial statements or the payroll expense being correct each month. However, it is now the end of 2019 and it is time to make the adjusting entries to make sure that the amount of payroll liability and payroll expense is correct for the year (assume 2018 is correct). You may want to use T accounts to work through what needs to be done.
Your post should explain three things:
1. What information you will need to gather from payroll in order to make the correct adjusting entry (assume payroll is paid weekly on Wednesday for the hours worked the previous week (Mon to Sat, no Sun).
2. How you will use information found in 1 to calculate the amount of the journal entry (you can make up numbers or describe in generic terms)
3. What your adjusting entry will be
Ans 1. |
There are two aspects of Adjusting payroll entries. |
One is related to the payroll of last 7 to 9 days |
which will be paid in the first Wednesday of the |
next accounting year . |
So, we need the payroll details of the remaining |
working of the year after that last payroll payment for |
the year was made. That amount will be accrued as |
wages payable. |
Secondly , the opening balance of wages payable |
needs to be nullified as that is expense of previous year. |
Ans 2. |
Suppose the year ends on Friday. |
So in the last Wednesday of the year, the previous |
week's payroll from Mon-Sat was paid & accounted. |
Now this week's Monday to Friday payroll is due and will be |
paid on the First Wednesday of the next Year. |
We need to accrue the payroll from Mon-Friday of the |
last week of the year . Assume the daily payroll is $10,000. |
So we need to accrue $10,000*5=$50,000 as Accrued wages |
expense of the current year. |
Ans 3. | ||
There will be 2 Adjusting Journal Entries: | ||
Account | Dr $ | Cr$ |
Accrued Payroll | $ 62,000 | |
Wages Expense | $ 62,000 | |
(Nullifying the last years accrual as it was related to previous years expense , not current years wages) | ||
Account | Dr $ | Cr$ |
Accrued Payroll | $ 50,000 | |
Wages Expense | $ 50,000 | |
(Accruing the last 5 days wages expense which will be paid next year) | ||