During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.

Question

Quizplus · Accepted Answer

The vacation pay expense should be recorded in the first year when the employees earned it, according to the matching principle of accounting, which states that expenses should be recorded in the period in which they are incurred to generate revenues.

During the First Year of Operations, Employees Earned Vacation Pay