Reference no: EM132730600

Financial Statements

Problem 1: Suppose there is a small-scale business called X-mart. Every year it makes a payment of ?10,000 as salary. However, in the current year 20% of the salary could not be paid for some reason. How would this transaction be reflected in the three different financial statements? (The increases and decreases mentioned in the options are w.r.t. the previous year.) Select the correct option from below.

Option 1: Accrued wages increase by ?2,000 on the balance sheet. Salary expense to be recorded as ?8,000 on the income statement.
Option 2: Accrued wages increase by ?2,000 on the balance sheet. Salary expense to be recorded as ?10,000 on the income statement.
Option 3: Salary expense to be recorded as ?10,000 on the income statement. There is no impact on the balance sheet.
Option 4: Salary expense to be recorded as ?8,000 on the income statement. There is no impact on the balance sheet.