Question

An employer offers each of its 50 employees 20 vacation days per year. As of January, no employees have taken vacation; however, each employee has earned 1.5 days. Vacation days that are unused at the end of the year may be carried forward to the following year. The employer encourages employees to use their full vacation allotment and thus does not anticipate forfeitures. Must the employer record a liability for the employees' vacation days earned thus far

Answer 1

An employer is required to accrue a liability for employee's right to receive compensation for future absences when certain conditions are met and as a result it makes it a requirement for a liability to be accrued for vacation benefits that employees have earned but have not yet taken.

In the given case, employer offers each of its 50 employees 20 vacation days per year. As of January, each employee has earned 1.5 days. The Vacation days which are unused at the end of the year may be carried forward to the next year. There is no anticipation of any forfeitures.

Therefore employer must record a liability for employees vacation days earned so far for presenting true and fair view of the financial statements.