Benefits Accrual - AccountingTools

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Benefits Accrual Accounting

The proper benefits accrual accounting is to create a journal entry whenever there are employee benefit expenses that have been incurred during the reporting period, but for which an associated supplier billing has not yet been received. For example, a company’s provider of disability insurance may only bill the company on a quarterly basis, so the payroll staff should create an entry for the first two months of the quarter that accrues the cost of the insurance, and then reverses the accumulated liability when the bill arrives. A sample of this transaction is shown below:

	Debit	Credit
Medical insurance expense	xxx
Dental insurance expense	xxx
Disability insurance expense	xxx
Life insurance expense	xxx
Accrued benefits liability		xxx

You should reverse this entry in the following accounting period, or in the period in which the offsetting supplier invoice is received.

Derive the benefits accrual information from the last supplier invoice. It usually itemizes specific individuals and the amount of the benefit expense for each one, so it is a simple matter to estimate the accrual based on these expenses for each person, adjusted for any changes in headcount since the last invoice was received, as well as any notification of changes in the cost of benefits. If benefit costs are quite small, then consider avoiding this entry, since the increased accuracy of the resulting financial statements will be minimal, while the payroll staff must spend valuable time creating the journal entry.