Question

Should 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? Use and discuss accounting principles to support your answer.

Answer 1

Hey buddy !!

The employee vacation pay has to be recorded in the period in which the vacation privilege is earned.

Reason - As per periodicity and accrual principles of accounting it has to be recorded in the year in which vacation privilege is earned. Accrual concept of accounting says which requires that income and expense must be recognized in the accounting periods to which they relate rather than on cash basis. Periodicity concept states that an organization can report its financial results within certain designated periods of time. This typically means that an entity consistently reports its results and cash flows on a monthly, quarterly, or annual basis. These time periods are kept the same over time, for the sake of comparability. For example, if the reporting period for the current year is set at calendar months, then the same periods should be used in the next year, so that the results of the two years can compared on a month-to-month basis.

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