Vacation accrual accounting

Example of Accrued Vacation Pay

For example, there is already an existing accrued balance of 40 hours of unused vacation time for Fred Smith on the books of ABC International.

In the most recent month that has just ended, Fred accrued an additional five hours of vacation time (since he is entitled to 60 hours of accrued vacation time per year, and 60 / 12 = five hours per month). He also used three hours of vacation time during the month.

This means that, as of the end of the month, ABC should have accrued a total of 42 hours of vacation time for him (40 hours existing balance + 5 hours additional accrual - 3 hours used).

Fred is paid $30 per hour, so his total vacation accrual should be $1,260 (42 hours x $30/hour).

The beginning balance for him is $1,200 (40 hours x $30/hour), so ABC accrues an additional $60 of vacation liability.

Use it or Lose it Policy

What if a company has a "use it or lose it" policy? This means that employees must use their vacation time by a certain date (such as the end of the year), and can only carry forwar

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