Explanation of the Entry for Workmen Compensation Reserve

To understand the entry for the Workmen Compensation Reserve, we need to consider the given information that the reserve stood at $60,000 and the liability is $75,000.

1. Overview of Workmen Compensation Reserve
Workmen Compensation Reserve is an accounting term used to represent the amount set aside by a company to cover potential future claims related to workmen compensation. It is a provision made by the company to ensure that it has sufficient funds to meet any claims or liabilities arising from work-related injuries or illnesses.

2. Calculation of Reserve Deficiency
In this case, the reserve stood at $60,000, which means the company has already set aside funds to cover a portion of the potential liabilities. However, the liability is $75,000, indicating that there is a deficiency in the reserve.

To balance the reserve and liability, the company needs to increase the reserve amount by the difference between the reserve deficiency and the liability.

3. Entry for Increasing the Workmen Compensation Reserve
The entry for increasing the Workmen Compensation Reserve can be recorded as follows:

Workmen Compensation Reserve Account Dr. $15,000
To Liability Account $15,000

Explanation of the Entry:
The above entry increases the Workmen Compensation Reserve account by $15,000 and decreases the Liability account by the same amount.

- The debit to the Workmen Compensation Reserve account reflects the increase in the reserve amount.
- The credit to the Liability account reduces the liability amount by the same value.

4. Impact on Financial Statements
This entry has the following impact on the financial statements:
- Balance Sheet: The Workmen Compensation Reserve on the asset side of the balance sheet increases, reflecting the higher provision for potential claims.
- Income Statement: There is no immediate impact on the income statement as this entry represents a transfer between balance sheet accounts.

Conclusion
The entry to increase the Workmen Compensation Reserve involves debiting the reserve account and crediting the liability account. This ensures that the reserve is sufficient to cover the potential liabilities arising from workmen compensation claims.