vacation pay definition

A common fringe benefit given to employees during a period in which they do not have to work. If an employee earns one week of paid vacation to be taken after working one full year, the employer should recognize this cost/expense and liability while the employee is earning it. One possible journal entry is to debit Vacation Pay Expense and to credit Vacation Pay Payable. Later, when the employee takes the vacation time, the employer would debit Vacation Pay Payable and credit Cash.