Accounting Implications of Minimum-Wage Regulations

Abstract

This article addresses the ways in which minimum-wage regulations impact on the data and financial statements reported by accounting systems. Taking a user perspective, the effect of a change in minimum wage will be more readily apparent within managerial accounting systems than financial accounting systems under current standards promulgated by the Financial Accounting Standards Board. In setting minimum-wage standards, policymakers consider a number of factors from both a societal and economic perspective. Changes in minimum wage can also have a significant impact on the financial statements a firm prepares for public dissemination. These financial statements are used by current stockholders, potential investors, lenders, and management to make decisions about the current status of the firm and its future prospects. Understanding how changes in minimum-wage regulations affect the quantitative information presented in the financial statements can help lead to better decisions by users of that information. Accounting systems keep track of quantitative information for both internal reporting purposes (managerial accounting) and external reporting purposes (financial accounting). The data processed and generated by the accounting system provides a window into the financial condition of a firm and has utility for both internal and external users who make decisions that are often highly dependent on the numbers and trends represented in that information. An increase