your firm, which is on accrual basis has a 100,000 mon-fri weekly payroll, and friday is payday. if the year ends on a Tuesday, what adjusting journal entry will you record??
Well, I must say, adjusting journal entries are like little magic tricks for accountants. In this case, since the year ends on a Tuesday, we need to account for two days of payroll expenses that will be paid in the next year. So, the adjusting journal entry would be something like this:
Debit: Payroll Expense (Tuesday's payroll) = $20,000 (2/5 of the total weekly payroll)
Credit: Accrued Payroll Liability (Tuesday's payroll) = $20,000
This way, we're recognizing the expense for those two days in the current year, even though they will be paid out in the next year. It's like having a little sneak peek into the future, but with numbers instead of palm reading.