Accrued vacation pay Chart of Accounts Journal Final questio

Accrued vacation pay Chart of Accounts Journal Final question ons A business provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year\'s vacation pay is $30,000. Required: A. Journalize the adjusting entry required on January 31, the end of the first month of the current year, to record the accrued vacation pay Refer to the Chart of Accounts for exact wording of account titles. B. How is the vacation pay reported on the company\'s balance sheet? When is this amount removed from the company\'s balance sheet?

Solution

Part A:

Account titles

Debit ($)

Credit ($)

Leave expenses

2500

Provision for leave expenses

2500

(Provision for vacation pay made)

Profit and loss account

2500

Leave expenses

2500

(Vacation pay expenses recognized in the profit and loss account)

Workings:

The estimated amount of vacation pay for the year

30000

Thus, the accrued amount for the month of January is (30000 x 1/12)

2500

Part B:

The provision for vacation pay expenses is showed under the current liabilities and provisions in the Balance sheet of an organization. Until unless the actual payment is made to the employees such account is showed in the Balance sheet. The amount is removed when the payment is made to the employees and there is no liability for vacation pay.   

Account titles	Debit ($)	Credit ($)
Leave expenses	2500
Provision for leave expenses	2500
(Provision for vacation pay made)
Profit and loss account	2500
Leave expenses	2500
(Vacation pay expenses recognized in the profit and loss account)