Stiner has chosen to accrue the liability for compensated absences at the rates of pay in effect when the compensated time is earned. Any difference between the accrual and amount paid is expensed in the year that the vacation is taken. The amount paid for vacation days is based on wages in effect when the vacation is taken. True or false?

A compensated absence is employee time off with pay, which can arise in such situations as sick leave, holidays, vacations, and jury duty. To account for compensated absences, it is not necessary to separately recognize them when they are earned and used within the same period, since it is typically rolled into the general compensation expense. However, they must be charged to expense and recorded as a liability when they are earned and their use is deferred to a later period.

An employer should accrue a liability for compensated absences payable to employees for their future absences, but only if all of the following conditions are met:

• The payment obligation for future absences is based on employee services already rendered.

• The amount of the obligation can be reasonably estimated.

• Payment is probable.

• The obligation is for employee rights that vest or accumulate.