Elwood Paragliders Pty Ltd reports monthly. Wages were paid on the last Friday of each month. On Sunday 30 June 2024, wages owing to employees (workers) totalled $2,400. Elwood Paragliders Pty Ltd adopts the accrual method of profit determination.
Required:
The best explanation for why the Balance Day Adjustment needs to be recorded on 30 June 2024would be.
CIf the Balance Day Adjustment was not recorded it would understate the current asset Cash which would impact liquidity.
O The wages have been incurred during the reporting period and must be included in the wages expense for the period for net profit to be calculated. They must also be paid in the future, so there needs to be recognition of that as a current liability.
O If the Balance Day Adjustment was not recorded it would overstate the current asset Cash which would impact financial stability.
O The wages have been incurred during the reporting period and must be included in the wages expense for the period for net profit to be calculated. They must also be paid in the future, so there needs to be recognition of that as a current asset.
The best explanation for why the Balance Day Adjustment needs to be recorded on 30 June 2024 would be:
O The wages have been incurred during the reporting period and must be included in the wages expense for the period for net profit to be calculated. They must also be paid in the future, so there needs to be recognition of that as a current liability.
This adjustment is necessary because it ensures that expenses are recognized in the period they are incurred, affecting the accuracy of the net profit calculation for the month. By recording an accrual for the unpaid wages, the company acknowledges both the expense and the corresponding liability, maintaining the integrity of its financial statements and reflecting its true financial position. Not recording this adjustment would result in an incorrect portrayal of cash and liquidity, as the wages expense would not be properly accounted for.
