What is the treatment for earned but unused vacation pay at Leisure Time Corp.?

Treatment for Earned but Unused Vacation Pay

Leisure Time Corp. follows the practice of paying all employees for vacation. The vacation pay is not vested, but it carries over for one year if unused. In this case, the obligation for earned but unused vacation should be accrued as a current liability.

Current liabilities in accounting are obligations that are due within the fiscal year or operating cycle of a company. By accruing the earned but unused vacation pay as a current liability, Leisure Time Corp. acknowledges this obligation to its employees and ensures proper financial reporting.

Accrued liabilities represent expenses that have been incurred but not yet paid. By recognizing the vacation pay liability as an accrued expense, Leisure Time Corp. reflects a true and accurate picture of its financial position.

Overall, by treating earned but unused vacation pay as an accrued current liability, Leisure Time Corp. demonstrates transparency in its financial reporting and honors its commitment to providing vacation benefits to its employees.