At period end, salaries earned but not yet paid are 1,500. What adjusting entry is recorded?

• A. Debit Salaries Payable 1,500; Credit Salaries Expense 1,500
• B. Debit Salaries Expense 1,500; Credit Salaries Payable 1,500
• C. Debit Salaries Expense 1,500; Credit Cash 1,500
• D. Debit Cash 1,500; Credit Salaries Expense 1,500

Answer: (B)

Accrued expenses are recognized when salaries are earned but not yet paid. You must record the expense for the period and a corresponding liability for what you owe. So, you increase the expense and also recognize a liability. The correct entry is to Debit Salaries Expense for 1,500 and Credit Salaries Payable for 1,500. This shows the period’s cost while noting the obligation to pay employees later. Cash isn’t involved yet because payment hasn’t occurred.

Why not involve cash or reduce the liability? Because no actual cash outflow has happened, and the obligation should be recorded as a payable, not reduced. When the company eventually pays, you would Debit Salaries Payable and Credit Cash.