Question 1 Explanation

Question #1: Each Thursday, your lemonade stand employees are paid for that week’s work of creating lemonade. The wages are paid in cash and are recorded by the company. Although the last payday of March was on Thursday, March 30th, 2021, the employees worked the following day (the last day of March) and earned $3,200.

What adjusting entry should you make related to wages as of March 31st, 2021?

Answer

Explanation

Your lemonade stand employees are paid each Thursday...

Question #1: Each Thursday, your lemonade stand employees are paid for that week’s work of creating lemonade. The wages are paid in cash and are recorded by the company. Although the last payday of March was on Thursday, March 30th, 2021, the employees worked the following day (the last day of March) and earned $3,200.

What adjusting entry should you make related to wages as of March 31st, 2021?

...and their wages (when paid) result in a decrease to the Cash account.

However, the employees worked one more day in March after the final March paycheck.

Question #1: Each Thursday, your lemonade stand employees are paid for that week’s work of creating lemonade. The wages are paid in cash and are recorded by the company. Although the last payday of March was on Thursday, March 30th, 2021, the employees worked the following day (the last day of March) and earned $3,200.

What adjusting entry should you make related to wages as of March 31st, 2021?

Since expenses need to be recorded in the period in which they occurred (accrual accounting), we need an adjusting entry.

This adjusting entry will essentially say: "Hey, we know we haven't paid our employees for that final day of work yet, but we're making note that it happened in March and that they will be paid for it the next month."

Now that we've identified we need an adjusting entry, how will it look?

Well, normally to record wages with a debit to the Wages Expense account and credit the Cash account. The "debit" part of this process remains the same; we're still going to debit the Wages Expense account (because we incurred a wages expense that final day of March).

However, we're not paying these employees yet out of the Cash account for this wage expense. That will occur in April's first paycheck. For the sake of March though, we've essentially created a liability for ourselves to pay our employees back at a later date.

This liability will be represented through the Wages Payable account. Since we're increasing our liability (of paying our employees wages back at a later date), we will be crediting this account.

Okay, now that we've got the accounts we'll be debiting / crediting, by how much are we going to debit / credit them?

Question #1: Each Thursday, your lemonade stand employees are paid for that week’s work of creating lemonade. The wages are paid in cash and are recorded by the company. Although the last payday of March was on Thursday, March 30th, 2021, the employees worked the following day (the last day of March) and earned $3,200.

What adjusting entry should you make related to wages as of March 31st, 2021?

By $3,200!