A company records an accrual for salaries expense as of the date of its fiscal year-end, December 31, 2020, in order to properly recognize incurred expenses for the fiscal year.
Matching Principle
When a company records an accrual for salaries expense as of its fiscal year-end, it is recognizing that it has incurred an expense during the fiscal year but has not yet paid the full amount owed to its employees. This accrual ensures that the financial statements for the fiscal year-ending December 31, 2020, accurately reflect the actual expenses incurred during that period.
Once the company records the accrual for salaries expense, it will have an accurate picture of its current liabilities. This can be important for a number of reasons, including managing cash flow, budgeting, and planning for future expenses.
Additionally, accurately recognizing salaries expenses can have important tax implications. By ensuring that all expenses are properly accounted for, a company may be able to reduce its tax liability by claiming all eligible deductions and credits.
Overall, recording an accrual for salaries expense is an important step in ensuring the accuracy of a company’s financial statements and maintaining compliance with accounting standards.
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