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General Accounting Discussions: Journal Entry for Payroll/ Pension

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    • CommentAuthorbd83009
    • CommentTimeOct 12th 2009
     
    I am in a Financial Accounting class and have been asked to write a hypothetical journal entry for a company that has paid its employees with $90,000 of salary and $15,000 of promised pension that is to be paid on the day the employees retire. (It is not stated if the employees all retire on the same day.) For the journal entry, I credited the cash account and debited salary expense and pension payable. Is this line of thinking correct? Are there any assumptions that I am making by setting up the journal entry in this way?
    • CommentAuthorAlex2008
    • CommentTimeOct 13th 2009
     
    It depends who manage the pension plan.

    (1) Suppose that the company paid the pension to a company that manage the pension plan. The journal entry can be:

    Salary Expense 90,000
    Pension Expense 15,000

    Cash 105,000

    (2) Or maybe the company runs the pension plan.

    Salary Expense 90,000
    Pension Expense 15,000

    Cash 105,000

    AND another entry in the plan

    Cash 15,000
    Pension Liability (whatever you name it) 15,000

    Year by year you have to make an adjusting entry depending of the type of the pension plan (defined contributions, defined pension...) and the ups and downs of the investments assets of the plan.

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