A liability for compensated absences such as vacations, for which it is expected that employees will be paid, should
A) be accrued during the period when the compensated time is expected to be used by employees.
B) be accrued during the period following vesting.
C) be accrued during the period when earned.
D) not be accrued unless a written contractual obligation exists.

Question

Quizplus · Accepted Answer

A liability for compensated absences such as vacations should be accrued during the period when earned. This means that the company should recognize the cost of the compensated time in the same period in which the employee earns it, not when it is actually used. This method matches the cost with the revenue that the employee generates. Accruing the liability for compensated absences during the period when the time is expected to be used or following vesting does not properly align the cost with the revenue generated by the employee. Not accruing the liability unless there is a written contractual obligation also does not properly align the cost with the revenue generated by the employee.

A Liability for Compensated Absences Such as Vacations, for Which