After accruing $20,000 of salary expense at the end of Year 1, how much of that salary expense is recognized in Year 2 when $30,000 is paid?

In this scenario, it's important to understand the distinction between accrual accounting and cash accounting. At the end of Year 1, when the $20,000 of salary expense is accrued, it means that the expense has been recognized in Year 1's financial statements even though it has not yet been paid. This accrual reflects the company's obligation to pay the expense in the future.

When Year 2 begins, the company pays out $30,000 in salary. In terms of expense recognition, the $20,000 that was already accrued at the end of Year 1 is recognized as an expense in Year 1. Therefore, in Year 2, the payment of $30,000 consists of two components: the $20,000 that was accrued (recognized in Year 1) and an additional $10,000 in salary expense incurred in Year 2.

Thus, the correct understanding is that in Year 2, $20,000 of the already accrued salary expense is recognized from Year 1, and an additional $10,000 is recognized for Year 2's salary expense. This results in the choice that states $20,000 from Year 1 and $10,000 from Year 2 being recognized appropriately.