Accounting question..?

Question

To match revenue and expenses properly, should the expense for employee vacation pay be recorded in the period during which the vacation privilege is earned or during the period in which the vacation is taken? Explain.

Answer 1

It should be recorded during the period during which it is earned. Be guided by IAS 19 Employee Benefits.

IAS 19 applies to (among other kinds of employee benefits):
* wages and salaries
* compensated absences (paid vacation and sick leave)

Basic Principle of IAS 19 -
The cost of providing employee benefits should be recognised in the period in which the benefit is earned by the employee, rather than when it is paid or payable. For short-term employee benefits (those payable within 12 months after service is rendered, such as wages, paid vacation and sick leave), the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period should be recognised in that period. [IAS 19.10]

Answer 2

You shoudl record it during the period which it is earned - this is when it becomes a liability for you (which is what you are recognizing - the liability). Good luck.