Accrued Expenses

CFA Level I FRA
#1

If on a balance sheet a company has Wages Payable of $4,000; as an investor, should I be worried about the future cash position or net income position?

My confusion derives from the interpretation of the accrual basis whereby that wages payable amount has already been expensed due to the accrual method of accounting and therefore when assessing a company with these liabilities, what should I be cautious about?

For the purpose of this question, and just to confirm my knowledge on this topic, these wages payable will never affect the income statement in the future (should the amount remain the same), correct?

Thanks.

#2

They will not affect future income statements; they’ll affect only assets (cash) and liabilities (wages) payable on the balance sheet.

#3

Thank you sir.

#4

You’re welcome.

#5

Theoretically, they might affect a future income statement if the firm refuses to pay them to the workers, and the liability lapses due to statutory prescription. In that case, the firm would write-off the payable and recognize other income. But that is a very remote scenario, highly unlikely to be in the exam (although pretty common in everyday life, for other types of liabilities at least).