Accountants refer to the wages earned by employees but not paid to them at the end of an accounting period as:
a. accrued wages.
b. carrying wages.
c. deposited wages.
d. booked wages.
e. deductible wages.
The correct answer and explanation is:
The correct answer is a. accrued wages.
Explanation:
Accrued wages refer to the wages that employees have earned during a particular period but have not yet been paid by the end of that accounting period. In accounting terms, “accrual” refers to the recognition of expenses or revenues when they are incurred or earned, rather than when the cash is actually paid or received. This concept follows the accrual basis of accounting, which is a fundamental principle that ensures financial statements accurately reflect the financial position of a business by recognizing transactions as they happen.
For instance, if an employee works from the 25th to the 30th of the month, but the payroll for the month is processed on the 3rd of the next month, the employer must account for the wages earned from the 25th to the 30th in the financial period where the work was performed. These wages are considered accrued wages, and the employer records them as a liability on the balance sheet until they are paid out.
The reason for accruing these wages is that the accounting period ends on a specific date, but work may still be performed or earned wages may remain unpaid. By recognizing accrued wages, the company ensures that its financial statements reflect the correct expenses for the period, providing a more accurate picture of profitability.
The other terms in the options are not related to this concept. Carrying wages, deposited wages, booked wages, and deductible wages do not represent the technical accounting term used for wages that have been earned but not yet paid by the end of an accounting period.