Transactions related to compensated absences should be recorded through journal entries, and the liability for compensated absences can be calculated based on accrued sick leave balances and policies.
Accrued compensated absences, such as sick leave, represent a liability for a company, as employees accumulate these benefits over time.
To record transactions related to compensated absences for 2021 and 2022, journal entries are necessary.
For 2021, the journal entry would involve debiting Compensation Expense - Sick Leave and crediting Sick Leave Payable.
This entry recognizes the expense incurred due to employees accruing sick leave hours.
Similarly, in 2022, a similar entry would be made: Debit Compensation Expense Sick Leave and Credit Sick Leave Payable.
This entry acknowledges the sick leave expense accrued in the year.
To compute the liability for compensated absences reported on the statement of financial position at the end of 2021 and 2022, the calculation involves multiplying the accrued sick leave hours by the hourly wage rate for each respective year.
For instance, if an employee has accumulated 100 hours of sick leave at an hourly wage rate of $20 in 2021, the liability would be $2,000 (100 hours * $20/hour).
This calculation method ensures that the financial statements accurately reflect the company's obligation for compensated absences owed to employees at the end of each reporting period.
It also aligns with accounting principles by recognizing the expenses associated with these benefits as they are earned by employees, providing a clear picture of the company's financial position and obligations.