Accrued salary not to be paid

[jimcpa]

We have recently purchased a company that has accrued salaries. These salaries are not going to be paid. What is the correct entry to remove them from the books?

 

[The Finance Writer]

Debit the liability accounts for accrued salaries (and accrued payroll taxes that should have also been recorded at the time of the accrual). The offsetting credit has to apply to income. I hope you considered this income tax impact for an accrual basis taxpayer when purchasing the company.

 

[Counterofbeans]

Debit the liability accounts for accrued salaries (and accrued payroll taxes that should have also been recorded at the time of the accrual). The offsetting credit has to apply to income. I hope you considered this income tax impact for an accrual basis taxpayer when purchasing the company.

Just to clarify, The Finance Writer is referring to what you would do to the acquiree's book's PRIOR to recording your, "acquisition" J/E. In other words, you WOULDN'T credit payroll expenses on your books (i.e. acquiror) as part of the "purchase accounting" J/E to consolidate this entity into your financial statements.

If that was the case, the credit would likely go to Goodwill (or increase negative goodwill).

You can't generate income via the purchase accounting J/E of another business.

 

[The Finance Writer]

Just to clarify, The Finance Writer is referring to what you would do to the acquiree's book's PRIOR to recording your, "acquisition" J/E. In other words, you WOULDN'T credit payroll expenses on your books (i.e. acquiror) as part of the "purchase accounting" J/E to consolidate this entity into your financial statements.

If that was the case, the credit would likely go to Goodwill (or increase negative goodwill).

You can't generate income via the purchase accounting J/E of another business.

Counterofbeans is correct about my journal entry on the books of the acquiree. Actually, I assumed that the acquiror is not even another business because the question refers to "we" as the buyers. That implies a group of individuals rather than a company. Hence, I was indeed not referring to any journal entry about consolidation because the question as worded doesn't imply a consolidation of businesses.