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18 October, 03:24

If the salaries of the sales staff of a manufacturing company are improperly recorded as a product cost, what will be the likely effect on net income of the period in which the error occurs?

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  1. 18 October, 05:23
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    Net Income will be overstated

    Explanation:

    The journal entry for salaries payable is

    Salaries Expense Dr.

    To Cash A/C

    (Being salaries paid recorded)

    Salaries expense is charged to net income and the journal entry is

    Net Income Dr.

    To Salaries Payable

    Salaries expense reduces net income as it being a deductible expenditure for a corporate.

    In the given case, salary expense has been accounted as a product cost. This would reduce the expenses and thus would overstate the net income.
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