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29 June, 18:51

During 2018, the first year of operations, Silver, Inc., pays salaries of $175,000. At the end of the year, employees have earned salaries of $20,000, which are not paid by Silver until early in 2019. What is the amount of the deduction for salary expense? a. If Silver uses the cash method, $175,000 in 2018 and $0 in 2019. b. If Silver uses the cash method, $0 in 2018 and $195,000 in 2019. c. If Silver uses the accrual method, $175,000 in 2018 and $20,000 in 2019. d. If Silver uses the accrual method, $195,000 in 2018 and $0 in 2019. e. None of these choices are correct.

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  1. 29 June, 21:52
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    Answer: D, If Silver uses the accrual method, $195,000 in 2018 and $0 in 2019

    Explanation: Accounting for organisations are recorded in accrual basis and not cash basis. This means that all income and expenses pertaining to a particular year is accounted for in that year.

    Silver Inc. will record in its books the total salaries due to its staff for any particular year in the year the expense was incurred. if paid in that year it will be recorded thus:

    Debit salaries as salaries expenses for the period

    Credit bank as salaries paid.

    If salaries are not paid in the year it was incurred, it will be recorded thus:

    Debit salaries as salaries expenses for the period

    Credit salaries payable account as accrued salaries

    when treated this way, it will give room to silver inc to recognise that they owe salaries that are yet to be paid which will reflect in their financial statement as Payable in the current year.
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