Generally Accepted Accounting Principles
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|Accounting for Compensated Absences|
Statement of Financial Accounting Standards No. 43
"Accounting for Compensated Absences"
Issued in November 1980
What are Compensated Absences?
Compensated absences mean
--> employee absences for which employees will be paid
Examples of compensated absences
--> vacation, illness, holidays
When is an expense recognized for such payments?
Expenses are recognized
--> in the period when employees provide services
to be qualified for compensated absences.
If employees did not use all of such compensated absences
--> a liability is accrued for unused portion.
Liability is accrued when all of the following conditions are met:
a. Services already rendered (by employees)
b. Rights that vest or accumulate
c. Payment is probable
d. Amount can be reasonably estimated.
--> not contingent on an employee's future service
--> should be paid when an employee leaves
--> unused (but earned) rights to be carried forward to future periods
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