Question

On March 1, 2020, 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? O No, hiring an employee is an important event; however it is not an economic event that should be recorded. Yes, the company is now obligated to pay the employee, thus that event must be recorded. O No, the financial position of the company has been changed, however, the dollar amount of the transaction is not yet known. Yes, failure to record the event would cause the financial statements to be misleading.

Answer 1

Answer is option 1

No, hiring an employee is an economic event; however it is not an economic event that should be recorded.

Hiring employee is an important event because goods employees lead to business success. However employee is only hired on March 6 and he will be paid for his services on the last of month, March 31. His salary due on that date. As there is no financial transaction on March 6. No transaction is recorded.