What is the effect of an adjusting entry that records accrued salaries earned but not yet paid?

• A. Increases Salaries Expense and Increases Salaries Payable; Decreases Net Income.
• B. Increases Salaries Expense and Increases Cash.
• C. Decreases Salaries Expense and Increases Salaries Payable.
• D. Increases Revenues and Increases Cash.

Answer: (A)

The main concept is recognizing expenses when they are incurred, even if cash hasn’t been paid yet, by creating a liability for amounts owed. When salaries have been earned but not paid, you debit Salaries Expense to record the cost and credit Salaries Payable to reflect the obligation. This increases Salaries Expense and Salaries Payable, and because expenses reduce net income, net income decreases by that amount. Cash is not affected until the payment is actually made. The other descriptions would involve cash changing hands or would treat salaries as revenues or decrease the expense, which does not align with accrual accounting for accrued salaries.