Employees earn vacation pay at the rate of one day per month. During the month o

Question

Employees earn vacation pay at the rate of one day per month. During the month of June, 10 employees qualify for one vacation day each. Their average daily wage is $150 per day. Which of the following is the necessary adjusting journal entry to record the June vacation benefits?

Debit Vacation Benefits Expense $1,500; credit Prepaid Vacation Benefits $1,500.

Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.

Debit Payroll Tax Expense $1,500; credit Payroll Taxes Payable $1,500.

Debit Prepaid Vacation Benefits $1,500; credit Vacation Benefits Payable $1,500.

Debit Vacation Benefits Payable; credit Vacation Benefits Expense $1,500.

Explanation / Answer

Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.

This is the correct entry. every month, the leave pay is being accrued hence prepaid will not come into picture. Also this is the policy of the company and taxes have no relevance to it.

Hence the right entry is debit the expense and credit the accrual for the same value.

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