Question

On March 1, 2012, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?
a. Yes, the company is now obligated to pay the employee, thus that event must be recorded.b. No, hiring an employee is an important event; however, it is not an economic event that should be recorded.
c. Yes, failure to record the event would cause the financial statements to be misleading.

Answer 1

Answer:

B. No.

Explanation:

We do not need to give a journal entry for a non-economic event. Non-economic event means where there are no monetary transactions. As the company hires new employees who will start working on March 6, it is an event, but we cannot value this event in monetary form. Therefore, no journal entry is required to post.