Generally Accepted Accounting Principles
in the United States

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Accounting for Compensated Absences

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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.

     Vested rights 
           --> 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

U.S. GAAP Codification
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements

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