Correct Option: A. N 3000 and show wages accrued N 500 in the balance sheet
Detailed Explanation:
- Understanding the Trial Balance:
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The trial balance is a summary of all the balances in the general ledger accounts. In this case, it shows that wages amount to N2,500. However, there is a note indicating that N500 of wages are due but unpaid at the time of preparing the final accounts.
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Accrued Wages:
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Accrued wages refer to wages that have been incurred but not yet paid. In this scenario, the company owes N500 in wages that have not been paid by the end of the accounting period. This amount needs to be recognized in the financial statements to accurately reflect the company's liabilities.
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Calculating Total Wages:
- To determine the total wages expense that should be reported in the income statement, we need to add the unpaid wages (accrued wages) to the wages already recorded in the trial balance.
- Total Wages = Recorded Wages + Accrued Wages
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Total Wages = N2,500 + N500 = N3,000
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Balance Sheet Treatment:
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The accrued wages of N500 will be shown as a liability on the balance sheet. This is because the company has an obligation to pay this amount in the future. It will typically be classified under current liabilities.
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Final Accounts Preparation:
- In the income statement, the total wages expense will be reported as N3,000, reflecting both the wages paid and the wages that are due. This ensures that the financial statements provide a true and fair view of the company's financial position.
Why Other Options Are Incorrect:
- Option B: N 2,000 and show wages accrued N500 in the balance sheet:
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This option incorrectly states the total wages as N2,000. It fails to account for the accrued wages. The correct total should be N3,000, not N2,000.
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Option C: N 3,000 and show wages prepaid N500 in the balance sheet:
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This option misclassifies the N500. Instead of being prepaid, the N500 is an accrued liability. Prepaid wages would mean the company has paid for wages that have not yet been incurred, which is not the case here.
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Option D: N 2,000 and show wages paid in advance N500 in the balance sheet:
- Similar to Option B, this option incorrectly states the total wages as N2,000. Additionally, it misclassifies the N500 as wages paid in advance, which is incorrect since these wages are due and unpaid.
Summary of Key Points:
- The total wages expense should include both paid and accrued wages.
- Accrued wages are liabilities that must be recognized in the financial statements.
- The correct total wages expense is N3,000, with N500 shown as accrued wages in the balance sheet.
- Misclassifying wages (as prepaid instead of accrued) can lead to inaccurate financial reporting.