Question

Rich began working for George Washington University (GWU) on July 1, 2016, the first day of GW's fiscal year, at a monthly salary of $5,000 plus benefits. When he joined he was given a copy of GW's policy on paid time off. The details are as follows Vacation: "Administrative and professional staff earn 20 vacation days per year, accrued at the rate of 1.67 days per month. You may accrue, and carry into the next year, up to a total of 40 vacation days. Sick Times: "You earn one sick day per month (12 per year). You may use up to 12 sick days per year to care for sick members of your family or household who regularly depends on your care. You may accrue up to 130 sick days Personal days: "You may take up to three personal days per fiscal year. These days do not accrue If Rich did not take any time off during his first year of work at Gw for a vacation, sick time, or personal reasons, should Gw record a lability for vacation, sick time, and personal days owing to Rich on June 30, 2017? Explain why or why not. If GW does record a liability, what other financial statement items will be affected for the year ended June 30, 2017?

Answer 1

If Rich did not take any time off during his first year of work at GW, GW would still need to record a liability for vacation, and sick time. However, no liability is required to be recorded for the personal days.

Since the vacation and sick time accrues every year and can be carried into the next year, the same needs to be recorded as a liability in the current year which may be paid in the subsequent year. Thus, GW will be required to record a liability for the 20 vacation days and 12 sick days owing to Rich on June 30, 2017. However, the three personal days per fiscal year do not accrue and cannot be carried into the next year and hence lapse if not availed during the current year due to which no liability is required to be accrued for the same.

If GW records a liability, along with the salaries and wages payable, the other financial statement item that will be affected for the year ended June 30, 2017 will be the salaries and wages expense.