Question

How does a government account for compensated absences?

Answer 1

Compensated absences are absences where the employees will be paid in cases such as taking vacation,during sickness,or for taking leave from work for a specified purpose after working for a specified number of years such as teachers going for research. It includes :

• Vacation leave
• Sick leave
• Sabbatical leave

In vacation leave liabilities are recorded if they are only from the current financial resources.Until then they are reported only in schedule of long term obligations.For example,lets assume employees are paid 9 million dollars as vacation leave.Of this amt,6 million is paid in 2017 and balance is deferred until future years.So we debit 6 million as vacation pay expenditure and credit it as cash as well.The remaining 3 million goes for future financial obligations (deferred).It has no entry though. This is the entry in government funds.In government wide accounts, however, we debit vacation pay expenses as 8 million and credit cash and accrued vacation pay with 6 and 2 million respectively.

In sick leave we accrue sick leave only upon the retirement or resignation of the employee. Here we debit sick leave expenditure and credit cash for the amount paid.For example,employees earned a sick leave of 150000 million dollars but were paid only 130000 million.Here in governmental funds we debit sick leave expenditure and credit cash with 130000 million dollars. In govt wide accounts too the same entry is made.Only 130000 amt actually paid needs to be recorded.

In sabbatical leave it is done on the basis of the purpose of leave .Activities are to improve your job related skills and liabilities accrue only if the payments  are made in the current financial year.It is for the period of leave and compensated unrestricted time off(as a reward for past services rendered).

Hope this answer helps.