Analyzing and Computing Accrued Wages Liability and Expense
Demski Company pays its employees on the 1st and 15th of each month. It is March 31 and Demski is preparing financial statements for this quarter. Its employees have earned $32,000 since the 15th of March and have not yet been paid. How will Demski’s balance sheet and income statement reflect the accrual of wages on March 31? Indicate the effect on the balance sheet and income statement accounts if Demski failed to make this accural (overstated or understated).

Decrease/Increase wages payable by $ on the balance sheet.

Decrease/Increase wages expense by $ on the income sheet.

Decrease wages payable by $32,000 on the balance sheet.

Decrease wages expense by $32,000 on the income sheet.

Explanation:

Wages Expense accrued entry effects the expenses and liabilities as this expenses not been paid yet. Failing to record this adjusting entry the Expenses on the income statement will be understated and Income statement is  reporting overstated profit because expenses are deducted from the income. On the other hand as employee are not been paid so there is a liability which business need to pay in future. Failing to record this too the Liability of Wages payable is understated and Balance sheet is reporting a lower liability of wages payable. So both wages payable and Wages Expenses are decreased due to omission of this adjusting transactions.

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