A company provides employee life insurance to all full-time employees.
Employee life insurance policies are paid twice a year to the insurance company.
Transactions for current employees must be recognized in the general ledger twice a month with an employee's pay.
Transactions for new employees must be recognized in the general ledger based upon the employee's first pay date.
You need to configure accrual schemes for the new fiscal year.
Which two configurations should you use? Each correct answer presents part of the solution.
NOTE: Each correct selection is worth one point.
Click on the arrows to vote for the correct answer
A. B. C. D.BD.
To configure accrual schemes for the new fiscal year, you should consider the company's policy of providing employee life insurance to all full-time employees. The transactions for current employees must be recognized in the general ledger twice a month with an employee's pay, while transactions for new employees must be recognized in the general ledger based upon the employee's first pay date.
Accrual schemes are used to record revenue or expenses for a period when they are earned or incurred, regardless of when they are paid or received. In this case, employee life insurance policies are paid twice a year to the insurance company, but the transactions need to be recognized in the general ledger more frequently.
The following configurations should be used to meet the requirements:
A. For new employees, use a Credit accrual scheme. In the ledger accrual, set the offset to the first day of the fiscal year. This configuration suggests that a Credit accrual scheme should be used for new employees. A Credit accrual scheme records a liability that is owed to the employee, which will be paid at a later date. In this case, the employee life insurance policy is a liability owed to the employee. The offset should be set to the first day of the fiscal year, which will ensure that the liability is recorded at the beginning of the fiscal year.
B. For current employees, use a Credit accrual scheme. In the ledger accrual, set the offset to the employee's first pay date. This configuration suggests that a Credit accrual scheme should be used for current employees. The offset should be set to the employee's first pay date, which will ensure that the liability is recorded on the same day as the employee's pay. This will ensure that the liability is recognized in the general ledger twice a month, as required.
Therefore, the correct answers are A and B.
C. For new employees, use a Debit accrual scheme. In the ledger accrual, set the offset to the employee's first pay date. This configuration suggests that a Debit accrual scheme should be used for new employees. A Debit accrual scheme records an expense that is incurred but not yet paid. This configuration is not appropriate for this scenario because employee life insurance policies are a liability, not an expense.
D. For current employees, use a Debit accrual scheme. In the ledger accrual, set the offset to the first day of the fiscal year. This configuration suggests that a Debit accrual scheme should be used for current employees. This configuration is not appropriate for this scenario because employee life insurance policies are a liability, not an expense.