During the financial year, a firm paid \text{₦}120,000 by cash for salaries. At the end of… — JAMB UTME

During the financial year, a firm paid $\text{₦}120,000$ by cash for salaries. At the end of the year, salaries amounting to $\text{₦}15,000$ remained accrued and unpaid. What total amount should be debited to the Profit and Loss Account for salaries?

$\text{₦}135,000$ Answer
B
$\text{₦}105,000$
C
$\text{₦}120,000$
D
$\text{₦}15,000$

Answer

\text{₦}135,000

Under the accrual concept of accounting, expenses incurred during an accounting period must be matched against the income of that period. Adding the outstanding salary of

\text{₦}15,000

to the cash paid of

\text{₦}120,000

gives the total expense of

\text{₦}135,000

to be charged to the Profit and Loss Account.

Step-by-Step Solution

Identify cash paid and accrued expenses at year-end

Cash paid =

\text{₦}120,000

; Accrued salary =

\text{₦}15,000

Under the accrual concept, expenses incurred during the financial period must be recognized regardless of when cash is paid.

Calculate the total salary expense for the Profit and Loss Account

\text{₦}120,000 + \text{₦}15,000 = \text{₦}135,000

Accrued expenses at the end of the period are added to the cash paid to determine the full charge for the year.

Key Concept

Accruals adjustment for expenses

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