Which of the following costs incurred in May should be recorded as an accrued expense at the end of the month?

• A. Wages earned by employees in May but not yet paid by May 31
• B. Supplies purchased and paid for in May
• C. Utilities paid in full for May on May 25
• D. Rent paid in advance for June

Answer: (A)

Verified step by step guidance

1. Understand the concept of accrued expenses: Accrued expenses are costs that have been incurred during a specific period but have not yet been paid by the end of that period. These expenses are recorded as liabilities on the balance sheet until they are paid.
2. Analyze each option provided in the problem: Determine whether the cost meets the criteria for an accrued expense by checking if it was incurred during May and remains unpaid by May 31.
3. Option 1: Wages earned by employees in May but not yet paid by May 31. Since the wages were earned in May and remain unpaid by the end of the month, they qualify as an accrued expense and should be recorded as such.
4. Option 2: Supplies purchased and paid for in May. Since the payment for supplies was made in May, this does not qualify as an accrued expense because there is no outstanding liability at the end of the month.
5. Option 3: Utilities paid in full for May on May 25 and Option 4: Rent paid in advance for June. Both of these costs were paid during May, so they do not qualify as accrued expenses. Utilities were paid for the current month, and rent was paid in advance for a future period, which would be recorded as a prepaid expense instead.