Final answer:
Differences between pension cost and contributions to a pension fund are reported as a pension asset or liability on the balance sheet.
Step-by-step explanation:
In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as pension asset/liability. This reflects the concept that if a company's pension expense for a period is greater than the amount funded, the result is a liability.
Conversely, if the amount funded is greater than the pension expense, the result is an asset. This pension asset or liability is recognized on the company's balance sheet and helps to provide an accurate picture of the company's financial position regarding its pension obligations.
The accounting for pension plans involves complex calculations, including projections of future pension payments, estimations of the return on plan assets, and considerations of the employees' years of service and salary levels. Pension insurance ensures a level of protection for workers’ pensions, especially in cases where a company is no longer able to meet its pension obligations due to bankruptcy.
However, as defined benefit pension plans are becoming less common, being replaced by defined contribution plans such as 401(k)s and 403(b)s, the nature of pension liabilities and assets on balance sheets is also changing.