Milo Company closes its accounts at the end of each calendar year. The company operates on a five-day work week and pays its employees up to date each Friday. The weekly payroll is regularly $5,000. On Tuesday, December 31, Year 1, an adjusting entry was made to accrue $2,000 salaries expense for the two days worked since the last payday. The company did not make a reversing entry. On Friday, January 3, Year 2, the regular weekly payroll of $5,000 was paid and recorded by the usual entry debiting Salaries Expense $5,000 and crediting Cash $5,000. LO8 Were Milo Company’s accounting records correct for Year 1? For Year 2? Explain two alternatives the company might have followed with respect to payroll at yearend.

One of the alternatives should include a reversing entry.