Liability/expense adjustments—involves accrued liabilities. Accrued liabilities are liabilities not yet recorded at the end of an accounting period. They represent obligations to make payments not legally due at the balance sheet date, such as employee salaries. At the end of the accounting period, the company recognizes these obligations by preparing an adjusting entry including both a liability and an expense. For this reason, we also call these obligations accrued expenses.

An accountant records unpaid salaries as a liability and an expense because the company has incurred an expense. The recording of the payment of employee salaries usually involves a debit to an expense account and a credit to Cash. Unless a company pays salaries on the last day of the accounting period for a pay period ending on that date, it must make an adjusting entry to record any salaries incurred but not yet paid.

MicroTrain Company paid employees on Friday, December 27. The next payday will be in January of the next year. We need to do an adjusting entry to record the salary earned by employees from December 28 – December 31 of this year. December 28 and 29 are weekend days and employees do not work those days. We need to account for 2 days, December 30 and 31.

If salaries are $900 per week. For a five-day workweek ($900 / 5 days), daily salaries are $180. MicroTrain makes the following adjusting entry on December 31 to accrue salaries for two days ($180 per day x 2 days):

A Open Assessments element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/llfinancialaccounting/?p=88