Greetings,

I'm quite new to accounting and have been working my way through the basics of the statements and ratios,etc. Its quite interesting. In the meantime I was trying to work through a problem that I think is simple for those with an accounting formation though I would appreciate advice in how to approach this type of problem as I've seen it before.

Question: So a company began 2006 with a salaries payable balance of $75,000. It had 2006 salary expense of $80,000. During 2006 it paid $100,000 in salaries. Its 2006 ending salaries payable balance is what ?

While I'm interested in the answer I'm more interested in what the general approach is as well as understanding the differences between salary payable (a liability account) and salaries expense (which is an income sheet expense account).

Here is my guess at the answer.. But it is just based on very limited knowledge. But I wanted to at least try. So $100,000 was paid during 2006 which wiped out the $75,000 in salaries payable at the beginning of 06 and left $25,000 sitting around for more salaries. Since salary expense for 06 was $80,000 I would apply the $25K to that giving a $55,000 remainder of salaries payable. But again. I'm wanting to know
The more structured approach.

Regards, Also I can help with lots of computer issues (UNIX, Linux, OSX) so I'll happily help you in those areas

Quote:

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Originally Posted by new2accounting

Greetings,

I'm quite new to accounting and have been working my way through the basics of the statements and ratios,etc. Its quite interesting. In the meantime I was trying to work through a problem that I think is simple for those with an accounting formation though I would appreciate advice in how to approach this type of problem as I've seen it before.

Question: So a company began 2006 with a salaries payable balance of $75,000. It had 2006 salary expense of $80,000. During 2006 it paid $100,000 in salaries. Its 2006 ending salaries payable balance is what ?

While I'm interested in the answer I'm more interested in what the general approach is as well as understanding the differences between salary payable (a liability account) and salaries expense (which is an income sheet expense account).

Here is my guess at the answer..But it is just based on very limited knowledge. But I wanted to at least try. So $100,000 was paid during 2006 which wiped out the $75,000 in salaries payable at the beginning of 06 and left $25,000 sitting around for more salaries. Since salary expense for 06 was $80,000 I would apply the $25K to that giving a $55,000 remainder of salaries payable. But again. I'm wanting to know
the more structured approach.

Regards, Also I can help with lots of computer issues (UNIX, Linux, OSX) so I'll happily help you in those areas

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Your aswer is right,
Debit)Salaries Payable... 75,000
Credit) Cash... 75,000
---------------------------------------------------------------
Debit)Salaries Expense... 80,000
Credit) Cash... 25,000
Credit) Salaries Payable... 55,000
-----------------------------------------------------------------

Thanks for the confirmation. So is the general approach to solving a problem like this to break it down into the ledger entry ? For example, the question could have just as easily asked about interest income or some other type of expense vs. a liability. So I want to be able to attack these types of problems with a specific approach. Your explanation does help and I can follow it but I want to make sure I can handle any type of "beginning balance" vs. "end of year balance problem. Thanks again.

You are more than welcome, if you have any question in the future I will be more than happy in help you answering.

Thanks, For purposes of confirmation may I run another scenario by you that extends on this theme ? I want to make sure I have it down. So the Question is like:

A company recorded an interest expense of $6,000 for 2006. During 2006 there was a $5,000 interest payment made. What would be included in the operating section of the company's 2006 indirect method statement of cash flows ?

So the first thing I would do is , as in the problem above, setup the Dr/Cr as follows:

Debit) Interest Expense $6,000
Credit) Cash $5,000
Credit) Interest Payable $1,000

Now since this represents an increase in Interest Payable , which is a liability, I would
Then *add* the $1,000 in the operations section of the indirect cash flow statement.
That is one adds increases in liabilities and subtracts decreases in liabilities. Is this correct ?
Thanks

Quote:

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Originally Posted by new2accounting

Thanks, For purposes of confirmation may I run another scenario by you that extends on this theme ? I want to make sure I have it down. So the Question is like:

A company recorded an interest expense of $6,000 for 2006. During 2006 there was a $5,000 interest payment made. What would be included in the operating section of the company's 2006 indirect method statement of cash flows ?

So the first thing I would do is , as in the problem above, setup the Dr/Cr as follows:

Debit) Interest Expense $6,000
Credit) Cash $5,000
Credit) Interest Payable $1,000

Now since this represents an increase in Interest Payable , which is a liability, I would
then *add* the $1,000 in the operations section of the indirect cash flow statement.
that is one adds increases in liabilities and subtracts decreases in liabilities. Is this correct ?
Thanks

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Once again you are right, since interest payable is an increase to liability the $1,000 would be an addition.

Cash Flows from operating activities
Net Income... $xxxxxxx
Add: Decreases in noncash current assets... $xxxxxxxx
Increases in current liabilities..........................1,000
Expenses with no cash outflows( deprecition and
Amortization)... xxxxxxxx
Nonoperating losses (losses from assets sales and
From debt retirements)... xxxxxx... xxxxxxx
Less: Increases in noncash current assets... xxxxxxxxxx
Decreases in current liabilities... xxxxxxxxxx
Revenues with no cash inflows(amortization and
Bond premiums)... xxxxxxxxxx
Nonoperating gains (gains from asset sales and
From debt retirements)... xxxxxxx... xxxxx
Net Cash provided (used) by operating activities... $xxxxxx

Hope this could help you