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Question: when he closed his ledger accounts at 30th april x7, Luther’s wages expense account had a debit balance of 87963. Luther also had to make an accrual of 1268 for outstanding wages.
what is his opening balance for wages at May 1st x7?
1. 1268 dr
2. 1268 cr
3. 87963 dr
4. 87963 crMy answer was 87963+1268=89231… obviously that is wrong..!!!
the correct answer is 2. 1268 cr.
thinking out loud:
so he CLOSED his ledger accounts, transferring 87963 to the Income statement. ok.
the accrual entry wd be:
Dr. Wages expense
Cr. accrualso, even by this, i shd get 1268 dr….
OR
was the situation such that the accrual had been made and the balance of 87963 INCLUDED the amount of 1268, and the question is simply asking for the opening balance on the accrual liability account , wages payable?
please help.. only 5 days left for exam
At 30 April, the entry is Dr wages, Cr accruals.
At the start of the next year – i.e on 1 May – the entry is reversed. Dr accruals, cr wages.
So next year starts with a credit balance ( which is perfectly sensible since it means that we start the year owing for wages)
thank u…. the point of reversal at start of year was the key…thank you again!!!!
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