AAT Level 3 Management Accounting Techniques (MATS) Practice Test

When wages are paid, it reduces cash and increases the wage expense for the period. In double-entry bookkeeping, expenses are debited and cash or bank is credited when payment is made. So the correct entry is to debit Wages (to record the expense) and credit Bank (to show the cash leaving the business). This reflects the increase in expense on the income statement and the decrease in the bank balance on the balance sheet.

Debiting Bank would imply increasing cash, which isn’t correct when paying wages, and crediting Wages would reduce the expense, which would misstate the transaction.