What is the adjusting entry for accrued salaries of $1,200?

• A. Debit Cash; Credit Salaries Payable $1,200
• B. Debit Salaries Payable $1,200; Credit Salaries Expense $1,200
• C. Debit Salaries Expense $1,200; Credit Salaries Payable $1,200
• D. Debit Salaries Expense $1,200; Credit Cash $1,200

Answer: (C)

Accrual accounting requires recording expenses when they are incurred, even if cash isn’t paid yet. When employees have earned salaries but haven’t been paid, you recognize the expense and set up a liability called Salaries Payable. The adjusting entry for this $1,200 is to debit Salaries Expense for 1,200 and credit Salaries Payable for 1,200, increasing both the expense for the period and the liability to be paid later. Debiting Cash or crediting Cash would imply cash has already moved, which isn’t the case; debiting Salaries Payable would reduce the liability, and crediting Salaries Expense would incorrectly decrease the expense.