Question

A liability for compensated absences is:

1) accrued under all conditions
2) disclosed in a note only
3) accrued only if specific conditions are met
4) never accrued but may be disclosed if desired

Answer 1

A liability for compensated absences is accrued only if certain conditions are met, including services rendered by employees, the accumulation or vesting of leave rights, and the likelihood of payment for the benefits.

Step-by-step explanation:

A liability for compensated absences, such as vacation pay or sick leave, is accrued only if specific conditions are met. According to accounting standards, such as Generally Accepted Accounting Principles (GAAP), an employer should accrue a liability for the cost of compensated absences when the services are rendered by the employees, the rights to compensated absences accumulate or vest, and the employer will probably compensate the employees for the benefits through payment.

The three conditions that typically need to be met for a liability to be accrued are services already rendered by employees, rights to compensated absences that are accrued or vested, and payment of the benefit that is probable.