At the end of January, the amount a company owes its employees for time worked in January totals $80,000, all of which will be included in their paychecks on February 5. Which of the following journal entries should be recorded in January and February?
In January: Wage Payable (L) (dec) 80,000
…Cash (A) (dec) 80,000
In February: Retained Earnings (OE) (wage expense) (dec) 80,000
…Wage Payable (L) (inc) 80,000
In January: Wage Payable (L) (dec) 80,000
…Cash (A) (dec) 80,000
In January: Retained Earnings (OE) (wage expense) (dec) 80,000
…Wage Payable (L) (inc) 80,000
In February: Wage Payable (L) (dec) 80,000
…Cash (A) (dec) 80,000
In February: Retained Earnings (OE) (wage expense) (dec) 80,000
…Cash (A) (dec) 80,000
Correct answer. According to the matching principle, expenses are recognized in the period in which related revenue is recognized. The wages for January make the company’s operation and sales in January possible, and therefore should be recognized as an expense in January, with a corresponding increase in Wage Payable. It will decrease the Wage Payable account in February when wages are paid in cash.
