Question
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.
- A. For new employees, use a Credit accrual scheme. In the ledger accrual, set the offset to the first day 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.
- C. For new employees, use a Debit accrual scheme. In the ledger accrual, set the offset to the employee's first pay date. Correct
- D. For current employees, use a Debit accrual scheme. In the ledger accrual, set the offset to the first day of the fiscal year. Correct
Explanation
Insurance expense is recognized by a debit accrual scheme, so options A and B, which use credit schemes, do not fit. For current employees the accrual starts at the beginning of the fiscal year, so the offset is the first day of the fiscal year (D). For new employees recognition must start at their first pay date, so the offset is that date (C). Pairing the offsets the other way round would start the accruals at the wrong time.
