Question

Vacation pay payable is reported on the balance sheet as a(n):

A) current liability
B) long-term liability
C) expense
D) current liability or long-term liability, depending upon when the vacations will be taken by employees

Answer 1

The correct answer is:

current liability or long-term liability, depending upon when the vacations will be taken by employees (D)

Step-by-step explanation:

A current liability is an expense obligation by an organization that is payable within the operation cycle of a business. The operating cycle is the time period for a business to acquire inventory, sell it, and convert the sales into cash. In most circumstances, the operating cycle is usually a year. On the other hand long-term liabilities are those obligations that are not due for payment in the next 12 months.

Vacation pay payable can either be long term liability, if the vacation is not due within the next 12 months, or current liability if the vacation is due within the next 12 months of a business year.