Understanding Accrual Method Employers Deduct Compensation

When do accrual-method employers deduct compensation?

(A) When they are earned
(B) When they are paid
(C) When they are accrued
(D) When they are budgeted

Final answer:

Accrual-method employers deduct compensation when it is earned, regardless of when it is paid.

In accrual accounting, employers deduct compensation when it is earned. This means that the deduction is recorded in the books as soon as the employee performs the work, regardless of when the payment is actually made.

Explanation:

For example, if an employee works for two weeks in January and the company pays salaries at the end of the month, the compensation for those two weeks would be deducted in January when it is earned, not in February when it is paid.

This method ensures that expenses are recorded in the period in which they are incurred, providing a more accurate picture of the company's financial position.