Under the accrual method of accounting, this account reports the amount of worker compensation insurance expense that pertains to the period indicated in the heading of the income statement, whether or not the company has paid the insurance premiums within this time period.
The worker compensation insurance expense associated with the selling and administrative functions of the business will appear as on operating expense on the company’s income statement. Worker compensation insurance cost associated with employees in the manufacturing function of the business will be an integral part of the cost of the products manufactured. If all of the products are sold, the worker compensation insurance cost will be included in the cost of the goods that were sold. If some of the products manufactured are in inventory, then some of the worker compensation insurance costs will be included in the costs of the products that are held in inventory.
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