Over the past 3 years, DK Ltd. neglected to accrue unpaid worker wages from the final week of each fiscal year. The material omissions were: March 31, 2010 – ` 56,000; March 31, 2011 – ` 51,000; March 31, 2012 – ` 64,000. The correcting entry on March 31, 2012 would involve a
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Answer: D. Debit to wage expense for ` 13,000
Explanation
The correcting entry accounts for the cumulative effect of unaccrued wages over the prior accounting periods. Comparing the final omission of sixty-four thousand with the previous omission results in a net difference. Subtracting the past error leaves a specific incremental adjustment of thirteen thousand to the wage expense account. Material omissions from prior periods require prior period adjustments to correct beginning retained earnings and balances. Wage expenses must be recorded in the specific fiscal year the labor services were actually performed. Double-entry bookkeeping requires balanced debits and credits when correcting historical financial statement errors.
Auditors frequently uncover historical discrepancies that necessitate precise multi-year correcting journal entries. Correcting past wage omissions prevents misleading trend analysis for internal management and external investors. Accurate expense recognition ensures compliance with statutory accounting frameworks and taxation requirements. Crediting wage expense would decrease the recorded cost rather than correct an understated prior wage accrual. A debit of sixty-four thousand ignores the previous unrecorded accruals and overstates the required period correction. A debit of fifty-one thousand matches a previous year omission rather than the net current correction amount.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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