When workers earn wages that will be paid in the next period but are not yet paid at year-end, which accounts are affected?

• A. Wages expense increases and wages payable (liability) increases.
• B. Wages expense decreases and cash increases.
• C. Wages payable decreases and revenue increases.
• D. Wages expense increases and cash decreases.

Answer: (A)

Wages earned by workers in the current period but not yet paid create an accrued expense and a corresponding liability. In this situation you recognize the cost now and record an obligation to pay later. The proper entry increases Wages Expense (to reflect the cost of labor for the period) and increases Wages Payable (a liability representing the amount owed). Cash is not affected at year-end because the payment will occur in the next period. When the payment does occur, Cash will decrease and Wages Payable will be debited to clear the liability. The other options would either misstate the expense, misstate the cash impact, or involve revenue, which isn’t relevant to this wage scenario.